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Consideration Factors for International Business to Export Leather

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BEING AN INTERNATIONAL BUSINESSMAN WHAT WOULD BE YOU CONSIDERATION TO EXPORT Leather TO Taiwan By
Ms. Zenat Sultana
Reg ID:

A Field Work Report Submitted to
Mr. Quamrul Ahsan
Course Instructor: - International Business

Faculty of Business
Brac University

BRAC University, Dhaka
December 13, 2014

December 13, 2014

Quamrul Ahsan
Course Instructor- International Business
BRAC University, Dhaka

Dear Instructor:
Enclosed report is concentrated on the consideration factors as an international businessman to export Leather to China, India and the European belt which stands a viable business case and feasible return on investment.
This report is aimed to be found justified & satisfactory.
Sincerely,
Ms. Zenat Sultana
Student ID:

Executive Summery
International business grew over the last half of the twentieth century partly because of liberalization of both trade and investment, and partly because doing business internationally had become easier. In terms of liberalization, the General Agreement on Tariffs and Trade (GATT) negotiation rounds resulted in trade liberalization, and this was continued with the formation of the World Trade Organization (WTO) in 1995. At the same time, worldwide capital movements were liberalized by most governments.
Today, business is acknowledged to be international and there is a general expectation that this will continue for the foreseeable future. International business may be defined simply as business transactions that take place across national borders. This broad definition includes the very small firm that exports (or imports) a small quantity to only one country, as well as the very large global firm with integrated operations and strategic alliances around the world. Within this broad array, distinctions are often made among different types of international firms, and these distinctions are helpful in understanding a firm's strategy, organization, and functional decisions (for example, its financial, administrative, marketing, human resource, or operations decisions).The government of Bangladesh undertook significant steps during the 1980s. considering the recent, exports in Bangladesh increased to 208.10 Bangladesh Taka Billion in August of 2014 from 175.90 Bangladesh Taka Billion in July of 2014. Exports in Bangladesh averaged 29.82 Bangladesh Taka Billion from 1972 until 2014, reaching an all time high of 208.10 Bangladesh Taka Billion in August of 2014 and a record low of 0.05 Bangladesh Taka Billion in February of 1972.

This is an encouraging indicator to be potential participating nation in the emerging international business arena.

Introduction
1.1 Back ground of Bangladesh Leather Industry
Prior to 1971 a few small and medium sized tanneries were engaged in the production of wet blue leather. The production was mainly destined for the local market and only a small part for export. After liberation of Bangladesh the leather sector of the country suffered a setback because the non-Bengali owner/entr epreneurs left Bangladesh. Most of the abandoned enterprises were nationalised and the sector continued to suffer till 1980-81 major policy reforms took place, which resulted in positive development of the sector.

Today the leather sector is a major industry in the country. The basis of this sector is the domestic supply of rawhides and skins of goat, cow and buffalo. Despite many repeated clarion calls for the development and reassessment of the leather and allied leather footwear export sector as a thrust sector with great potential for growth, the net results have been far from impressive.

Today this is a 4th largest export earning and highly potential sector in Bangladesh as the 90% of the basic raw materials - high quality grain leathers are locally available that can certainly find a strong niche in the world market. This sector is very much akin to RMG sector, the number one export earning sector in Bangladesh that earned over USD 20b with imported basic raw materials in 2011-12, and where value addition scope is ~40%.

As oppose Leather sector (where value addition scope is ~90%) in FY 2011-12, grew by 17.5 percent and earned $765 million in revenue, of which $434.8 million was derived from footwear and leather products, accounting for approximately 57 percent of the total revenue of the sector. export earnings in 2011-12 stood at USD 330.6m, 10.86% higher than that of previous year. The sector evolved at this stage of its own without much care, due nurture and patronization.

Leather as an existing and potential trade between item for Bangladesh |
In the last ten years (2002-2012) among the major exporting sectors leather and leather products account for a significant growth (300%) particularly the leather products sub-sector (900%). Export of leather products jumped from $ 50 million to $435 million which is only 0.5% of the global market share so there is a huge room to explore the opportunity for the leather products sector of Bangladesh to increase the world market share.

The leather industry is composed of a broad category of products like crust/finished leather, footwear and other leather goods. A good number of tanneries have been modernised in the last decade for producing quality crust/finished leather. The production of leather goods have also made some progress both in terms of quality and quantity while making wide range of products, which have helped increase the total export of leather and leather goods.

1.3 Objective
As part of international business Bangladesh export. To operate international business and export what kinds of matter would be consider for growing those kinds of international business.
1.4 Hypotheses
The leather sector includes 220 tanneries, 3,500 MSMEs and 110 large firms of leather products controlling more than 90% of the export market. Most of the enterprises are located in Dhaka, followed by two big clusters at Bhairab and Chittagong. The sector generates direct and indirect employment for about 850,000 people, including a significant number of women, particularly in the leather products industries.

The larger enterprises like BATA, Gallerie Apex, Bay, Jennys are controlling the domestic market of high ended leather products but they are mostly dependent on imported products. So there is an immense opportunity for the MSMEs to provide up to USD 150 million in import substitution via becoming subcontractors for these very large global enterprises . MSMEs themselves are unable to function as important market players due to the following reasons:

* Absence of clustering strategy for joint production and retailing by MSMEs

* Inefficiency in production

* Lack of skills

* Limited access to modern machinery

* Competition from cheap/illegal imports,

* Limited access to market information and market linkages

* Lack of confidence by consumers about locally produced products

* Unable to raise adequate financing

These sectors in the value chain for leather within Bangladesh into sustainable stakeholders.

1.5 Major Findings: a. There are 3 subsectors –
Leather Tanning,
Leather Footwear,
Leather Goods

b. 90% of basic raw materials i.e. hide locally available. About 220m sq feet of leather of high grain produced locally.

c. The sector is very much akin to the RMG sector, but there is far greater scope of value addition ~90% as oppose to RMG where value addition scope is ~40% as basic raw materials for leather sector are locally available. RMG is the single largest contributor to export about USD over 20b; however, basic raw materials are imported.

d. 50% of leather is being exported in the form of semi-finished and finished leather losing the value addition opportunity. Rest 50% is being converted into footwear and leather products for low-end market.

e. There is an enormous scope for entrepreneurs and investors. The sector is still catering to the low-end export market. In order to advance it must move to the next levels.

f. Business friendly policy: The sector needs business friendly policy by Government to increase the investment.

g. Needs more skilled workers and managers: Although there are unskilled competitive labour forces, there is shortage of skilled workforces, managers and entrepreneurs.

h. Limited access to market - Bangladesh has a limited or small share (~0.56%) in the global business, so there is a tremendous opportunity to grow to capture more market share around the world. Vietnam can be a benchmark for Bangladesh who imports 70% of raw materials and exports Shoes and footwear products: USD 6.549b, Bags & leather handbags: USD 1.289b

i. Limited access to market information: A deeper, more widely held understanding of market trend in terms of quality, fashion, leather product prices, competitors, importers and consumers’ preferences, and anticipated regulations and restrictions needs to be developed in Bangladesh.

j. Poor cooperation between firms/ stakeholders: strong connections between value chain members for a strong sector position, the stakeholders should hold their hands together for mutual benefits. Unfortunately this is still not the case.

k. Low product quality and productivity: Product quality and overall productivity is always a concern for this sector. The product quality means the reliability and aesthetics of the finished products. It stems from the quality of basic raw materials including flayed hide/skin and chemicals, the overall workmanship and the machines/process used in the industry, so the sector still today target mostly the low end product market. The main reasons of poor quality are –

* Lack of formal education of stakeholders / owners particularly of tannery

* Lack of awareness of stakeholders involved in skin/hide flaying and preservation business

* Limited awareness and knowledge of proper butchery and hide preservation among amateurs flaying during the (sacrificial) festival

* Poor quality of finished leather

* Higher prices of imported processing chemicals for hides/skins

* Poor quality of raw materials.

l. Outdated Machineries - Traditional status quo mind set of the owners; they lack information on appropriate machineries, sources, prices etc. They also lack awareness on incentives for product / productivity improvements, are using traditional tanning and manufacturing methods and process.

m. Limited access to finance: Lack of awareness of FIs on potentiality and risks of this business. Collateral and complicated formalities to have finance.

n. Pollution from Tanneries: The tanneries discharge nearly 22,000 cum of untreated and highly toxic (contains chromium) into the water body everyday. It produces 100 tons of solid waste everyday in the form of trimmings of finished leathers, shaving dust, hairs, trimmed animal flesh skins/hides to contaminate the soil and the water.

o. Government allocated a dedicated land with CETP and necessary infrastructures in Savar, adjacent to Dhaka city, to address the major issues against environment, and to check pollutions by relocating Hazaribagh cluster to Savar

p. Relocation and moving to designated modern tannery cite with existing outdated old machineries from the existing Hazaribagh cite is a big challenge, and a matter of big investments for the tannery owners.

q. There is a Institute of leather engineering and technology producing 150 graduates every year. Many leather engineers get involved in the unrelated fields of their expertise as the sector is not nurtured or promoted.

r. Although there is a tendency of rent seeking mentality, and avoiding entrepreneurial challenges, there are many educated leather technologists and business persons who can emerge as very talented entrepreneurs provided the sector is nurtured and facilitated with basic requirements of a sector.

s. Lack of support and promotion for SMEs

t. Absence of integrated policy; no long term policy regarding Common Facility Center (CFC)

u. Lack of Accessories Manufacturers as backward linkage.

v. Lack of skill development institutes

w. Under activities and support from BIOs/BMOs

x. Poor infrastructure (power), interrupted power supply

y. Waste management is in shambles

2. International Market Situation and Export Prospects of Bangladesh Leather and Leather Goods
2.1 Impact of World Population Growth and Increasing Wealth on the Production and
Export of Leather and Leather Goods

At present the size of the global footwear market is still enormous for even during economic crises people need and buy shoes. Although in periods of economic recessions people might Export-Oriented Business Sector: curtail buying higher-price fashion or sports items, the demand for functional shoes remains almost unchanged, if indeed it does not increase with the growth rate of the population. The high purchasing power of the population of the developed countries compensates for the lower purchasing power of the developing nations. Historical data show that demographic and wealth factors have consistently driven the growth in the footwear industry.

2.2 Leading Producers and Consumers of Leather and Leather Goods

Most of the shoes of world are produced by the newly developed, developing and least developed countries, but the developed countries consume most of the shoes. The developed nations from America, Asia and Europe consume per capita 3.5-5.0 pair of shoes, which represent the strongest part of the world shoe market.

2.3 Case Study - China and India

2.3.1 Chines Scenario

China is today globally the undisputed leader in footwear manufacturing and also has a highly developed components and accessories industry. This development was favoured by the opening up of the Chinese economy, which enabled the influx of Taiwanese investment amounting to billions of dollars as well as the transfer of Taiwanese know-how in this sector.

The North-South migration of various industries, which began from the industrialised USA and West European countries to the newly industrialised countries such as Japan, Taiwan and Hong Kong continued with the rise of labour costs in those countries to the new cheap labour countries like China, Indonesia, Thailand, Vietnam and India. In this respect China was certainly favoured by foreign investors because of its political stability, reliability, infrastructure, qualified and cheap labour forces and big local market.

2.3.2 Indian Scenario

Because of very similar social, political and economic conditions an analysis of the state of the Indian leather and leather goods sector can prove very useful for developing countries like Bangladesh to prescribe direction and policy.

Like China, the leather and leather goods sector of India has benefited the most from a long-term development policy. Obviously it capitalises on its natural advantages of abundant raw materials, plentiful and low-cost labour, a large pool of skilled and trained human resources, a strong artisan shoe-making tradition as well as an immense domestic market. Certainly India remains far behind China because it has in the last decade been more reluctant to open its market and liberalise the economy. But India introduced within its political setting the following measures to upgrade its leather and leather goods sector:

e. Direct fiscal incentives in the form of export cash subsidies, import license benefits against export performance, tax-free export earnings, reduced airfreight costs, duty drawback, etc. These direct cash subsidies were continued from the 70s till the 90s when they were withdrawn, having brought the exporters to a sound footing and has

been replaced by an almost 35% depreciation of the Indian rupees against the US dollar.

m. Establishment of a network of institutions including such world class training and research facilities such as Central Leather Research Institute (CLRD) in Madras and Footwear Development and Design Institute (FDDI) in Delhi These are manned by highly experienced and trained instructors and consultants and have established collaboration with global players such as Bally of Switzerland and SATRA of UK.

3.0 Problems and the International Challenge of Bangladesh Export-Oriented Leather and Leather Goods Sector

3.1 Problems of Bangladesh Leather and Footwear Export Sector

The Bangladesh export-oriented leather and leather goods may be characterised by:

* Lack of an integrated comprehensive policy with proper inputs by all the stakeholders such as exporters, government, suppliers and buyers;

* A small number of factories that have been set-up by mainly inexperienced entrepreneurs and ever eager machinery suppliers, who have used the myth of the buy back agreements to push their machine sales. These factories by and large have been unable to get off the ground despite considerable investment in machinery and infrastructure;

* Other than three or four exporters most of the factories are not engaged in regular produc tion and exports;

* A total lack of adequately trained and skilled human resources for production as well as for managerial personnel in the leather footwear industry;

* No training institute or facilities for skill development;

* No support industry in terms of linkage factories such as lasts, cutting dies etc, so there is a high import dependence thereby reducing price competitiveness as well as increasing lead times; * Low awareness amongst international buyers as not enough factories are working in the industry

* Poor representation in major international product fairs and shows;

* No design, product development or product testing capability in the country; * No awareness of international quality standards such as Eco- labelling and packaging, occupational standards and environmental management requirements and their growing importance to foreign buyers;

* Insufficient co-operation & co-ordination between various regulators, policy makers and stakeholders of the industry. In some cases duplication of efforts by various agencies especially donors is occurring;

* Lack of a suitable enabling environment in the customs facilities of the country at time of import of raw materials, due to harassment and delays in clearance;

* Inadequate working capital finance as most banks insist on Master L/C and back to back L/C procedures for import. Unfortunately in today's highly competitive market most buyers no longer operate on L/C. Our competitors offer much easier payment terms such as open account, D/A basis delivery, etc;

* No easy access to the local market for exporters, making them highly vulnerable to the perils of stock lots and cancellations. In China as well as India up to 50% of the total output can be sold onto the local market, whilst still enjoying exporter status. In contrast, in Bangladesh local sales are taxed at such high rates of duty which makes the price too high for the mass market;

* Discrepancy in the import policy where the import duty on finished shoes and on shoe components and accessories is almost the same, therefore there is no advantage for manufacturers. Today the local shoe industry is being severely threatened by cheap imports that are being smuggled and dumped from neighbouring countries such as Myanmar and India.

4.1 National Political Measures

* Introducing measures to create a national political consensus so that under all political circumstance the export-oriented sector remains unaffected.

* Introducing a sound law and order situation so that all export oriented activities can take place without interruption or hindrance; * Trade Unions leader should be included in all relevant seminars and discussions so that a consensus can be achieved; * The Social and economic condition of the workers should be improved so that politically motivated forces do not find the upper hand from labour organisations and disrupt the Labour -Management relationship.

4.2 Development Political Measures

* Strengthening co-operation & co-ordination between regulators, policy makers and stakeholders of this sector;

* Setting up a Tannery Modernisation Fund to revamp technology and raise productivity;

* Introducing financial incentives and other necessary supporting policies to raise productivity, improve quality and make this sector globally competitive; * Supporting the establishment of linkage industries such as lasts, cutting dies etc to reduce high import dependence and promote price competitiveness;

* Enabling duty free imports of rawhides and skins as well as wet blue and finished leather for leather footwear exporters; * Introducing measures to enable adaptation of new and modern technology such as modern soling through joint ventures and international collaborations; * Promoting technological modernisation of this sector by sending high level delegations to China, India, Thailand, Indonesia, Brazil.

* Supporting the up -gradation of the components industries like lasts, cutting dies and shoe trims through duty concessions, duty free stock facilities, etc.; * Introducing financing and other incentives to increase local investment in this sector;

* Ensuring legal, institutional and other supports for the development of backward linkage industries of this sector;

* Introducing attractive incentives and non-bureaucratic and user friendly operating policies to promote foreign investment in this sector.

4.3 Marketing Support Measures

* Supporting diversification of export products; * Supporting the exporters of this sector by visiting important international footwear and leather trade fairs; * Supporting a marketing campaign especially in Canada, USA, EU, and Japan to promote the image "MADE IN BANGLADESH";

* Supporting sellers-buyers meetings;

* Ensuring consumer safety and international standard of packaging to improve marketing of leather and leather goods;

* Ensuring occupational safety and labour compliance issues to improve international reputation and image;

* Introducing effective measures to protect the environment and improve international image and reputation; * Rationalised tariffs and access to the local market for exporters should be allowed so that this sector does not suffer from stock lots and cancellations;

* Eliminate discrepancy in the import policy to sup port value addition and reduce import; i.e., increase import duty on finished shoes for a limited period, reduce duty on import of shoe accessories and components;

* Taking the initiative to make producers and exporters aware of international quality standards, Eco- labelling and packaging, occupational standards and environmental management requirements and their growing importance to foreign market;

* Supporting quality management and improvement, export documentation, and assistance in the cases of difficulties ensuring payment from abroad;

* Supporting efforts for market diversification, i.e. expanding market in the countries other than USA, EU, Japan and Canada;

4.3 Financial Measures

* Ensuring direct fiscal incentives in the form of export cash subsidies, import license benefits against export performance, tax- free export earnings, reduced airfreight costs, duty drawback, etc to promote export; * Introducing export credit guarantee schemes to retain export earnings as foreign exchange;

* Providing financial supports for the backward linkage industries of this sector;

* Exempting tax and VAT from export of this sector much like what to done with Ready Made Garments (RMG);

* Exempting VAT, which is at present 15%, on import of sewing machine needles and parts;

* Introduce open account facilities or easier import terms in place of L/C should be introduced to promote export in this sector;

* Developing and introducing new and innovative payment terms for buyers to retain competitive advantage; * Adjusting national currency carefully to other currencies, especially that of the international competitors' or introducing dual exchange rate to support export of this sector;

* Providing long-term tax holiday to encourage local and foreign investment in this sector;

* Making value addition for high value items flexible so that high valued leather and leather goods become competitive on international market;

* Removing all anomalies and discretionary powers from bank operations.

4.4 Infrastructural Supporting Measures

4.5.1 Measures to remove Transport Congestion

* Removing all port congestion so that export- import operation can take place without any delay;

* Ensuring a well-developed national transport system so that communication among the export-oriented industries of this sector and transport of goods to the ports can take place without any delays;

* Regulating shipment charges so that it does not effect the competitiveness of this sector.

4.5.1 Measures to ensure Uninterrupted Power Supply

* Introducing measures to ensure uninterrupted power supply.

4.5.2 Measures to ensure Prompt Custom Services

* Equipping custom offices with modern information and other technology to ensure prompt custom service;

* Removing all anomalies and corruption opportunities from custom services.

4.6 Development Management and Institutional Measures

* Establishing world class training and research facilities such as a Leather Research Institute, Footwear Development and Design Institute and manning these with highly experienced and trained instructors and consultants to ensure development of this sector; * Establishing design, product development and product testing capability for this sector.

4.7 Measures to ensure Proper Development of Human Resource

* Creating education facilities for potential employees and workers of this sector;

* Creating Training facilities for potential employees of this sector;

Being international businessman for export Leather to Taiwan followings to be considered:

Throughout the period under review, Taiwan has remained a high performer in terms of democratic consolidation and market institutionalization. It continues to enjoy a high degree of stateness, meaningful elections, the absence of undemocratic veto actors, stable democratic institutions and a vibrant civil society.

The judiciary remains something of a weak point, as there are concerns over the politically motivated selection of judges for high-profile cases, the quality of the disciplinary system and a number of controversial rulings in child-abuse cases. But a consensus prevails within society that the country’s legal institutions operate reasonably well.

The 2012 parliamentary and presidential elections were characterized by much political polarization as the Democratic Progressive Party (DPP) conducted a campaign that targeted the
Chinese Nationalist Party’s (KMT) China policy, decrying the selling out of Taiwan’s sovereignty and economic well-being. However, the electoral outcome confirmed that the incumbent Ma administration enjoyed a rather solid mandate to launch more cross-strait initiatives, though with cautiousness.

Between 2008 and January 2013, 23 accords were signed by which cross-strait direct communication, trade and transport were reinstituted; a quasi-FTA (the Economic Cooperation
Framework Agreement, ECFA) was put firmly in place.

The DPP walks a fine line, however, as it must come to terms with reconciling its identity as the party of Taiwan independence and the realities of a changing cross-strait relationship that is determined as much by policymaking as by migration.

Economically, Taiwan was hit hard by the global financial crisis of 2008 – 2009, but steered through it remarkably well because of resolute and efficient government crisis management.
Consequently, Taiwan’s economy bounced back rather quickly with a growth rate of more than
10% in 2010. However, weak global and domestic demand, combined with low domestic investment, have reduced exports and led to declining GDP growth; it stood at only 1.25% at the end of 2012. Inflation has increased as well, though unemployment became less prevalent and sunk to 4.24% at the end of 2012, down from 5.85% in 2009 at the height of the global financial crisis. Taiwan’s financial sector still suffers from a number of structural problems, such as market overcrowding with banks and a rather low degree of internationalization.

However, the financial sector was further strengthened over the review period in terms of transparency, capitalization and control of nonperforming loans, resulting in a reasonable level of steering capacity in times of crisis.

Transformation Status

I. Political Transformation

1 | Stateness

Although Taiwan’s status under international law is contested, the Taiwanese state
(officially called the Republic of China, ROC) enjoys effective power and authority over its territory, including the islands of Taiwan, Penghu, Matsu and Kinmen.

The conflict over Taiwan’s political future as an independent nation-state or as part of a new and unified China remains to be resolved. The large majority of Taiwanese support the status quo in the Taiwan Strait, which best serves their security interests.
However, most studies show that Taiwanese national identity has been strengthening steadily since the early 1990s, deepening the people’s identification with their state and their desire for sovereignty. This trend has not changed since the KMT retook the government from the DPP and initiated a new dialogue with the Beijing authorities, resulting in more stable cross-strait relations, more intensive economic interaction, and more people-to-people exchange.

In Taiwan, state legitimacy is fully derived from a secular constitution. Religious dogmas play no role.

Taiwan’s civilian administration is differentiated, professional and provides sound and reliable public services throughout the country. The judicial system, law enforcement and the taxation bureaucracy are well established and functional. Access to water, education and health services is secure and the existing, highly developed communication and transport infrastructure continues to be upgraded.

2 | Political Participation

All relevant political offices are subject to competition in regular, universal and secret-ballot multiparty elections that are usually undisputed and are widely covered by the media. There are no restraints on the electoral process, which is fair and transparent.

However, vote-buying in local elections is still quite rampant and has so far weathered all legal attempts to curb it.
All elected rulers have effective power to govern, and there are no veto powers or exclusive political domains that might negatively affect democratic participation.

Although trade unions are independent, government employees, soldiers and defenseindustry workers remain barred from joining them. On the positive side, amendments to the Labour Union Act, the Collective Bargaining Agreement Act and the
Settlement of Labour Management Disputes Act came into force in May 2011, strengthening the rights of private-sector workers. According to the new rules, workers at different firms are now permitted to organize unions, thus giving them more collective bargaining power. Foreign workers are allowed to serve as union leaders, and teachers can now establish their own unions.

Freedom of opinion and freedom of the press are well established and are exercised without restrictions, with vigorous and diverse reporting on government policies and alleged official wrongdoing. There are no clear instances of systematic media harassment or violence against reporters.

Taiwan has been ranked a free country by Freedom House continuously over the last years, with 1 out of 7 for political rights in 2011, and 2 out of 7 for civil liberties in
2012. There are some 2100 newspapers and 8100 periodicals, 171 radio stations and
107 satellite broadcasting program providers that secure a plurality of opinions. The use of the Internet, to which more than 80% of Taiwanese households are connected, is unrestricted. Foreign media have free access to Taiwan and can work unimpeded.
This includes journalists from mainland China who can visit Taiwan for up to three months at a time and are free to travel anywhere without giving prior notice to the
Taiwanese authorities.

3 | Rule of Law

The separation of powers into executive, legislative and judicial branches is well established and there is no extralegal execution of governmental power. The government system is structurally handicapped by the constitutional relationship between the president and parliament in times of divided government

A range of sunshine laws regulate political donations, declarations of income for public servants, and the rules for political lobbying. Political corruption receives a great deal of attention in the mass media. It is an important issue on the platforms of all relevant political parties, and is prosecuted rigorously under criminal law. An official “Agency Against Corruption” was established in June 2011, mimicking similar institutions in Hong Kong and Singapore. Vote-buying in local elections remains a problem in Taiwan as it is established practice since the early days of democratization and regarded as inevitable by most politicians. However, the judiciary is prosecuting vote-buying activities and punishes those found guilty.

Taiwan enjoys a very good human rights record, according to all relevant international observer groups, and there are no reports of unlawful or arbitrary use of state power against the population. Civil rights are constitutionally guaranteed and well protected, and those who violate them are taken to court. The judicial system provides ample opportunities to seek redress for rights violations. Court trials follow due process and there are no reports of physical abuse of prisoners. The police largely respect the ban on arbitrary detention, and attorneys are usually allowed to monitor interrogations to prevent abuses.

4 | Stability of Democratic Institutions

All government institutions are democratically legitimized, work according to legal procedures and are sufficiently controlled by a working system of mutual checks and balances. Since interparty coalition-building has yet to be exercised and Taiwan lacks a solid political culture of compromise, the existing semi-presidential system of government is prone to deadlock in times of divided government.

5 | Political and Social Integration

The party system is stable, socially anchored and enjoys broad popular support.
Diverging opinions within the populace and societal interests are reflected and aggregated reasonably well.

Taiwan is home to a wide variety of civil society groups, including unions, professional and business organizations, social and environmental movements, and other associations representing a broad range of societal interests. This network of interest groups is close-knit, politically influential and operates independently of the state. There are no attempts by non-state interest groups to abandon democracy or organize political violence, and no group can dominate others.

II. Economic Transformation

6 | Level of Socioeconomic Development

Taiwan is a highly developed market economy. The country’s level of socioeconomic development permits adequate freedom of choice for all citizens. Fundamental social exclusion due to poverty, gender, religion or ethnicity is qualitatively minor to nonexistent and is not structurally embedded. Taiwan’s poverty rate, which is very low in international comparison, rose to 1.51% at the end of 2012, up from 1.35% one year earlier, confirming pressure on the lowest strata of society that has built for some years now. Income distribution – as measured by the Gini coefficient – is relatively equal and remained stable during the review period (2010, 2011: 0.342). In the latest Human Development Report (2011), the island republic ranked 22nd globally, and third in Asia behind Japan (12th) and South Korea (15th).

Economic indicators 2009 2010 2011 2012
GDP $ M 377568.0 428221.0 464026.0 473971.0
GDP growth % - 1.8 10.8 4.1 1.3
Inflation (CPI) % - 0.9 1.0 1.4 1.9
Unemployment % 5.9 5.2 4.4 4.2
Export growth % - 8.9 25.3 5.1 0.0
Import growth % - 13.1 27.7 -0.5 -2.1
Current account balance $ M 42923.0 39872.0 41230.0 49550.0
Public debt % of GDP 38.0 38.3 40.1 40.9
External debt $ M 81963.0 101581.0 122528.0 -
Total debt service $ M 6079.0 3630.0 7581.0 4531.0
Military expenditure % of GDP 2.4 2.1 2.1 2.3

Sources: Asian Development Bank (ADB), Key Indicators for Asia and the Pacific 2013 | International
Monetary Fund (IMF), World Economic Outlook 2013 | Stockholm International Pease Research Institute
(SIPRI), Military Expenditure Database 2013.

7 | Organization of the Market and Competition

Taiwan’s market economy is institutionally sound, with clearly defined and stateguaranteed rules for ensuring fair competition and largely equal opportunities for all market participants. Business freedom is high and, generally speaking, market actors face neither entry nor exit barriers. China’s access to Taiwanese markets, which is politically contested on the island, has been gradually liberalized since direct crossstrai trade was legalized in late 2008.

Investment in a number of strategic sectors like LED, solar cells and display panels remains capped for mainland investors at less than 50%. In non-strategic sectors of Taiwan’s manufacturing industries, however, mainland Chinese capital can increase its ownership to more than 50%.

Even though the state maintains its monopoly over certain basic utilities and services (e.g., electricity, water supply and postal services), market competition is well established and legal frameworks exist to combat cartels. The Fair Trade Law that took effect in 2002 ensures a coherent and effective approach to combating monopolistic structures or predatory price fixing.

Taiwan ranked 15th out of 144 countries in the Economic Freedom section of the World Annual Report 2012 (presenting figures for 2010), with high scores in the categories of foreign ownership and investment restrictions, business regulations, bureaucracy costs, government consumption, and state-run enterprises and investment. The report also maintained its ranking (13th) on the Global Competitiveness Report 2012-13, pointing at Taiwan’s strong approach to market freedom and antimonopoly policy.

8 | Currency and Price Stability

Taiwan had low inflation levels during the review period, though there was upward pressure, with onsumer prices rising by 1.42% in 2011 and 1.93% in 2012. The value of the New Taiwan Dollar (NTD) fell against the U.S. dollar during the review period, standing a 30.29 NTD at the end of 2011 and 29.26 NTD in October 2012. Taiwan’s government and central bank pursue a prudent forex policy that has been consistently linked to the goal of financial and economic stability and steered the county rather well through the 2008 – 2009 global financial crisis.

9 | Private Property

Taiwan’s property rights regime is well established and enforced by the judiciary. Property rights
10 Taiwan’s economy is mainly based on small- and medium-sized private companies (around 90% of all companies), which are adequately protected by the state. The state continues to be directly involved in a number of strategic economic areas (shipbuilding, petroleum, steel, sugar, tobacco and liquor, banking, insurance and railway transport), and basic utilities (electricity, water supply and postal services).

Between 1994 and 2008, 10 national corporations were privatized. Eventual privatization of all remaining SOEs is targeted but controversial because of economic considerations and regulatory difficulties. Taiwan ranks 16th (out of 185) in the World Bank’s Doing Business Index 2012, confirming its liberal market regime.

17 | International Cooperation

Increasing Taiwan’s integration into the international community has been one of the cornerstones of the Ma administration’s foreign policy. Its international leeway is, however, severely constrained by China’s strict stance on denying the island republic access to international organizations out of fear that international membership may strengthen the republic’s status as a sovereign nation in international politics.

Nonetheless, under various euphemisms for its national title, Taiwan participates in a large number of international organizations. Taiwan’s reputation for adapting to new circumstances and learning from its international environment has been well known since the days of the “Taiwan miracle.” Within the international community, it has earned high credibility and a reputation for reliability in implementing necessary market reforms. Since its accession in 2002, Taiwan has smoothly integrated in the WTO framework to facilitate global trade. It implements WTO rules well. Problems result from Taiwan’s obstinacy concerning issues related to nomenclature in international organizations, where it often feels marginalized or discriminated against by China.

Taiwan cooperates actively and successfully as a full member in 31 regional and international intergovernmental organizations, for example the Asian Development Bank (ADB), the Asia-Pacific Economic Cooperation (APEC) and the WTO (though not under its official state name of “Republic of China”). In addition, it has observe status in 20 organizations, including United Nations-affiliated bodies such as the World Health Assembly. Taiwan is a strong advocate of regional integration and cooperation. After the change of government in mid-2008 and the return of the KMT to power, it embarked on a strategy of controlled economic and social integration with the Chinese mainland, thus considerably easing cross-strait tensions. The Ma administration also has engaged in high-level political exchanges with the People’s Republic at meetings of regional organizations such as APEC and the Boao Forum.
However, the government’s hope that this would pave the way for its future inclusion in more free trade regimes in the region, most notably the ASEAN Free Trade Zone, has so far been disappointed as China does not show any signs of changing its conservative approach to Taiwan’s “international space.”

5. Conclusion

This paper has elaborately dealt with the great prospects for future growth and development of the leather and leather goods sector, especially the vast potential in further penetra ting the global export market. In order to achieve this objective a set of recommendations has been formulated in line with other countries which are leaders in this industry. These recommendations are realistic and, therefore, can be implemented with the genuine commitment of the concerned government and other stakeholders. It is hoped that all these stakeholders will come together to address these issues and agree on a common action plan to take this industry forward and to bring about the “Brown Revolution”.

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