Despite the looming world economic crisis, thedemand for leather goods from the year 2005 to 2008 is on the rise having a 9.25% average yearly growth from US$65.5 billion to US$ 85.4 billion according to International Trade Center via Trademap. The increase is surprising as leather goods are closely associated with luxury items which are correlated with the GDP in the specific region.

Interestingly, looking at the world demand, there is a potential market in Japan which placed 2nd in importing leathergoods along with Germany. The Japanese market which is suffering painfully from a prolonged economic slowdown for over a year has managed to post an interesting growth as demand of leather goods is still increasing.

Experts commented that Japan consumes luxury goods twice as much as per capita compared to the US. Leathergoods includes products involving HS codes 3926 (article of plastic nes.), 4202 (trunks, suit-cases, camera cases, handbags etc.), 4203 (articles of apparel and clothing access), 4303 (articles of apparel, clothing access and other articles of furskin), 6116 (gloves, mittens and mitts, knitted or crocheted), 6216 (gloves, mittens and mitts), 9601 (worked ivory and art of ivory) and 9605 (travel sets for personal toilets).

Japan's market
The above table shows us that in 2008 the Philippines ranked only 11th as a supplier of leathergoods to Japan, capturing only 0.8% of the pie while China gets 59.2% of the US$8 billion total import value for the country.  Forty five percent (45%) of our leather goods go to the US market, however,  historical data shows that there is  already a steady average yearly decline of leathergoods exports in the US of (2.31)% since 2005.
 
Japan is the Philippines’ second major market for leather goods at (22%), from US$41.42 million in 2005. It grows up to US$67.12 million in 2008 with an average yearly growth of 18.23%, but even with this double digit increase, we still capture a small percentage of the market.

Exploiting a Potential Market   
The table above shows us that China, Italy, France and even Vietnam became the main suppliers of leathergoods to Japan. This maybe due to the following reasons:

• China is able to offer superior advantage over competitors as they provide lower priced goods through lower labor cost and government support, and the use of high level of technology .

• European countries like Italy and France, their expensive leathergoods is compensated by their strong and continuous presence in the country, the consistent maintenance of high quality standard and the various famous high-end brand and product lines which perfectly cater to the near insatiable appetite for luxury items of the Japanese.

• And for Vietnam’s competitive edge is their embroidery or handwork and accessories.

The Philippine Industry’s Challenge
The penetration into Japan’s market lie on those key attributes of the top importing countries. We can see that price as a factor does not fairly affect the consumption of leather goods in Japan as there is a potential market and the rapid lifestyle of the country that need to be catered to. However, some basic issues that needed to be addressed first to increase our presence in Japan or any other importing country of leather goods. Issues such as:

• The widely scattered sector resulting to difficulty in gathering the total capacity and potential of the leathergood industry.

• Most of the companies operating below the maximum capacity (50%-60% capacity) due to manpower limitations, lack of raw materials, inadequate space and equipment limitation.

• Quality control problem both for raw materials and in production process.

• Low support from the government and the need to improve and increase business relations, connections and trade fairs.


This report was Written by
Name: Rey D. Amaya, CPA
Organization: University of San Carlos