Visible Links and Invisible Work:Reflections from Leather Clusters of Tamil

Nadu

 

Keshab DasGujarat Institute of Development Research,

Ahmedabad

 <keshabdas@gmail.com>

Promises of a New Economic Configuration

Coincidental as it might appear, since around the mid-1980s, the growing obsession with neolocalism matched with the rise of neoliberalism trends across the globe (especially, that took off during 1978 to the early 1980s with the US under Reagan, the UK under Thatcher and China under Deng), there has been a sustained rise in the sphere of international trade and movement of foreign direct investment (FDI). The spurt in internationalization signalled the deepening a new economic configuration - conveniently referred to as globalization – and, contemporaneously, it is possible to discern a rise in the participation of enterprises in developing economies in what has come to be known as global production systems (GPS).

Clear decline in the barriers to trade and FDI has resulted in the relocation and reconfiguration of processes of production, beyond national boundaries, especially by the large multinational enterprises. Encouraged further by the rapid progress in the ICT and reduction in transport costs, the global production networks (GPNs) have emerged in a number of modern and often labour-intensive subsectors in which typically firms are clustered, as for instance, cosmetics, garments, furniture, furnishing textiles, leather goods, pharmaceuticals, computer / electronic goods, automobile parts, agro processing, scientific equipments and so on.

Growing Emphasis upon GPS / GVC / GPN

By the early 1990s concept on the ‘new economic geography’ (Krugman, 1990; and Krugman and Venables, 1991), resonated similar attributes of co-location – the economies of scale and scope - in a broader framework of regions, focusing on the ‘dynamic effects’ of economic integration between large regions within a country or between nations. Additionally, Porter’s notion of competitive advantages through clusters (Porter’s Diamond model) and work by Gereffi, Schmitz and Humphrey largely influenced cluster policies that insisted upon participation in GPNs so as to position local clusters into the GVCs whereby competitiveness of the constituent firms improves. It has been argued that it is not necessarily due to taking advantage of the usually low factor costs by the global lead firms, but a more universal approach to enhance and share advances in technology and responsible production through ensuring standards of a range of aspects including those concerning product/process quality, labour, environment, health and even ethical aspects. Moreover, it is held, such an arrangement improves the scope for learning from buyers/suppliers through cooperation among participants while availing of the opportunity of global subcontracting.

Downside of GVCs

But there are challenges arising out of the nature of chain governance and underdeveloped local capabilities due to poor infrastructure and institutions, as characteristic of developing economies.

Reviews of GPS cases across several economies point to the mixed experiences depending often upon the sector and/or region in question. It is clear that the GPS does not automatically ensure upgradation into the GVC; the positioning in the chain would matter as much as the macro conditions within which participating firms operate. Scholars have expressed serious concern regarding the unequivocal merits of treading the GVC route suggesting to be careful about possible “downside” of the strategy, especially while dealing with the developing economies.

Examples from Asian economies do indicate problematic aspects of such trans-border business relocation, a major issue being that these are limited to few sub-sectors those carry out ‘rent-poor’ activities (with the labour-intensive, low-value addition component being subcontracted). There are related issues of stiff selection of subcontractors and absence of participation in non-labour and/or high-tech stages of a given process.  

Exclusionary Tendencies

Despite achieving progress in the product and process upgrading, firms typically remain out of the design and marketing functions of the chain. Even when the chain is fully hierarchical and transparent, participating units would need to invest heavily and also should be in a position to receive maximum local institutional support. It is likely that even within the cluster those enjoying the status of local lead supplier firms (the so-called ‘Ace Club’) are more likely to determine the nature and extent of gains that could accrue through the insertion of firms in the chain. Importantly, the spread and depth of informality in the clusters remain a major challenge to the supposed advantages of the GVCs.

Design and planning

Procuring raw materials

Processing / Assembling / Manufacturing

Marketing

Costumer care

Waste disposal

A Simple Value Chain and Typical Activities

Objectives and of the Study

With this broad backdrop, an attempt has been made to understand the experience of developing country firms engaged with global business typically through subcontracting. The case of the leather and leather goods clusters in Tamil Nadu in south India has been taken up through a survey of enterprises to understand the nature of business, production organization so as to critically reflect upon the question of labour in the infomal sector.

Indian Leather Industry: Externally Oriented over a Century

The organisation of production, conduct of business and institutional linkages of the Indian leather and leather products industry have had a distinctive history of external orientation. Receiving a fillip during the colonial era, the Indian foreign trade continued to have skins, hides and leather as important items of export, thus helping the domestic leather industry to grow. Over the last century or so, the contours of growth and diversification of this industry have been determined by not only the changing global pattern of demand for the finished products but also the gradual emergence of some of the poor and developing nations as important sources of the raw material and the site of certain forms of labour and production processes.

The availability of inexpensive skilled labour to process skin and hides and make leather products or components thereof is a major factor of location and growth of micro and small firms (MSEs), in the Indian leather industry.

Building Export Competitiveness: State as Catalyst

The progression of the leather industry during the post-independence period was also shaped by the support and direction provided through state policies to promote this sector with a clear focus on playing a role in the global sphere. The early emphasis on building up domestic technological capability through leather research and state efforts to encourage exports (by establishing CLRI and CLE) also had important implications for the sector to remain prepared for engaging with foreign markets and changes in technology. Due to the proactive and futuristic policy initiatives exports of leather and leather goods from India have risen steadily during the last decade and have remained one of the top ten items in the export basket. While till the beginning of the 1970s Indian export was almost entirely in raw skins and hides or wet blue semi-processed leather, the manufacturing of high value-added leather products, especially, footwear and bags, had hardly attained a semblance of global quality and also the production was largely confined to the MSEs including household level enterprises.

Policy Initiatives by the Indian Government to Promote the Leather Sector

The impressive export performance of the leather sector is attributable to proactive and favourable state policies all through. In 1973, the Seetharamiah Committee’s ‘radical’ recommendations restricted, for a decade, the export of raw skins and hides and wet blue leather to a level of 25 per cent of that in 1971-72, and actively promoted exports of finished products.

The emphasis on the markets beyond the domestic brought about a paradigm shift in the business strategies of the industry, which developed close interaction with the specialised state sponsored institutes for training, research and marketing support.

Listed as one of the ‘Focus Sectors’ under Foreign Trade Policy, 2004-09, the Government of India’s recent policy initiatives to promote the sector include: i. Funding support provided towards export promotion, technological upgradtion, market development activities, leather industry infrastructure strengthening and environmental safeguard measures; and ii. Simplified import/export procedures – quick customs clearances.

Policy efforts were designed towards building up domestic capabilities in the sector as well as rendering it a major source of generation of jobs.

Interface with Global Markets

The exports of leather and leather goods from India have risen during the last decade and have remained one of the top ten items in the export basket. Seven countries including Germany, UK, Italy and US, account for 70 per cent of total exports. This also suggests a growing global acceptance of both the products and skill involved.

Category

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

Finished Leather

381.49 459.25 508.83 555.71 607.73 636.27 688.05 807.19 673.37 625.54

Leather Footwear

381.37 395.39 423.30 553.04 657.78 807.81 950.90 1174.03

1243.78

1254.37

Footwear Components

238.09 233.94 175.07 161.27 179.21 182.58 212.65 269.30 246.35 209.13

Leather Garments

460.45 378.75 272.08 301.08 329.44 333.30 308.98 345.34 426.15 428.52

Leather Goods

440.37 407.16 425.39 539.21 585.72 660.17 690.66 800.46 873.30 756.02

Saddlery and Harness

42.66 35.64 43.66 52.71 61.71 77.52 81.85 106.18 92.15 83.39

Non-Leather Footwear

19.11 26.02 26.88 53.42 73.78 54.85 48.69 46.02 43.53 44.01

Total 1963.60

1936.14

1875.21

2216.45

2495.37

2752.50

2981.79

3548.51

3598.64

3400.97

Export of Leather and Leather Products from India, 2000-2010(Value in Million US$; Years relate to April-March))

Region 2008-09 2009-10 2010-11

Southern 1395.98 (38.78) 1355.55 (39.82) 1494.52 (38.87)

Western 698.36 (19.40) 779.41 (22.89) 965.46 (25.11)

Eastern 542.40 (15.07) 410.19 (12.05) 463.59 (12.06)

Northern 429.46 (11.93) 444.21 (13.05) 425.09 (11.06)

Central 109.75 (3.05) 104.78 (3.08) 113.97 (2.96)

Others 423.51 (11.77) 310.42 (9.12) 382.24 (9.94)

Total3599.46 (100.00)

3404.57 (100.00)

3844.86 (100.00)

Source: DGCI&SNotes: Figures in parentheses are column percentages showing Share in Total Export.

Data are based on port-wise compilation and does not reflect the accurate regional performance.

Export of Leather and Leather Products from India by Region, 2008-11

(Value in Million US$)

Prominence of Leather Clusters of Tamil Nadu

Even as activities concerning leather existed in several parts of India, during the last century or so, the major tanning industry has been concentrated in a few urban centres or industrial clusters as Chennai, Kanpur and Kolkata whereas the leather products manufacturing is spread beyond these three cities and found notably in Agra, Mumbai, Aurangabad, Kolhapur, Dewas and Jalandhar. Of these the Chennai cluster (including a few neighbouring areas as well) has been the most dynamic, produces quality leather and has a strong presence in the export market.

An estimated 50 per cent of leather production may be attributed to the clusters of Tamil Nadu which are mostly located in Chennai and the tannery belt across the Palar river valley (mainly, Vaniyambadi, Ambur, Pernambattu, Melvisharam and Ranipettai) in the Vellore district.

It is clear that subcontracting and jobwork prevail as a dominant form of production arrangement and the MSEs play an important role in these clusters. The markets exist at different layers, the domestic market per se being huge and calibrated.

Labour at the Works

• Although, traditionally, Chakkiliyans and Paraiyans (Scheduled Castes) were engaged in the leather works, many of them have moved out and no longer work for large factories.

• In fact, the large units have started procuring labour (Scheduled Tribes) from surrounding hill areas (in about 16 km radius, mainly, Alangayam, Javvadu Hills and Yelagiri Hills) using factory vehicles for their daily pick-ups for the two shifts. They are trained on job and preferred for ‘competitively low’ salary.

• Labbai Muslim workers dominate the clusters in the Palar valley region and through strong community network (Jamath) they have better access to raw materials and capital support. They are also strongly preferred by large units. • Social restrictions for working in leather factories have withered and members (including women) from poor households from even Hindu community are engaged in the clusters. •In factories, whereas women workers are preferred for activities concerning finished leather products as drying, trimming, finishing and packaging, male workers do ‘brawny’ jobs as cutting, stitching, processing and tanning.

Number of Workers

Total Workers

Number of Units

<10 5 110-50 537 1551-100 779 10>100 517 4Total 1838 30

Type of Workers

Proportion (%)

Male 50.16Female 49.84Skilled 31.88

Number of Workers in Sample Units

Type of Workers in Sample Units

Earnings (Monthly in Rs.)

Skilled UnskilledMale Female Male Female

< 5000 - 6 3 125000-7500 24 20 23 137500-10000 4 1 - -

Large Units (Activities include collection of raw material, tanning, processing and manufacturing both finished and semi-finished products. Own ETP.)

Distribution of Units by Workers’ Earnings

Two sample units had engaged workers only on piece rate basis. Average monthly earning: Female was Rs. 50 – Rs. 100 Male Rs. 100 – Rs. 200.

Women workers, particularly, are taken on temporary basis to avoid offering various benefits. ‘Regular’ employees are relieved from their jobs annually for a period of two months – it is compulsory and a tactic to avoid claim of permanency. Muslims have a stronger chance of being made permanent.

Trade unions exist as namesake.

Small Units (Activities include collection, tanning, processing and manufacturing units. Access CETP)

•Very few female workers•No trade union•Large number of units (mostly owned by Hindus) have closed down due to pollution issue and inability to compete on cost with microenterprises

•Many have shifted to individual activities like procurement of raw material, subcontracting and networking for exporters.

Microenterprises (Mostly operated from Muslim homestead, with capital support from within the community.)

1.Undertake jobworks from big companies and focus on making sole, shoe-upper, trimming etc. 2.Continue in the work due mainly to support from big companies, who place order at regular intervals3.Children and women engage in drying and tanning of leather

Workers in Related Enterprises in the Clusters

Small time merchants (mostly, Muslims) engage workers (3- 5 typically) in small sheds to modify/mend export rejects to be sold in the local markets. Also, workers are assigned with the job of procuring raw hides and skin through informal channels (slaughter houses). Workers find jobs such as dyeing in soaking pits, collecting wool/hair from processing units for traders and waste from the leather works for the poultry feed sector.

All these in the informal sector.

Labour Institutions and Standards

As observed in our surveys and also by a study of the Chennai cluster by EDII (2009), labour contractors without having any valid licenses (as with the State Labour Commissioner) supply workers to tanneries. As most such labour in clusters across Chennai and the Palar Valley do not have any trade union membership enforcement of appropriate labour standards through such institutions is not feasible. “Larger firms, however, have in-company ‘workers’ committee’ to represent the interest of workers to the management.”

Occupational Safety and Health (OSH) Standards in the leather sector would include aspects such as chemical safety, machine safety, work environment, personal protection, emergency management, auditing and monitoring safety measures, safety and health management. Similarly, occupational hazards in a tannery would arise while handling machinery and equipments, storage and application of chemicals, and risky work environment (e.g. slippery floors, leaking pipes, hanging electricity wires etc.).

Interventions in the areas of SA 8000, OSH, cleaner production etc. are yet to be taken up across units in the clusters.

An industrial cluster, intrinsically, is a dual-entity, encompassing a sectoral and spatial connotation.

The spatiality is not merely the place, that is, say, rural or urban, but has a strong reference to the level of regional development that determines the cluster’s access to both social and economic infrastructure.

Especially in the context of developing economies, industrial clusters cannot be viewed only from a sub-sectoral market expansion point, that too for a very few sectors and involving few firms in a cluster.

Beyond the hype of neo-localism, cluster promotion strategies must encompass a regional development perspective, wherein addressing issues of structural infirmities, especially, basic infrastructure and job creation, assume critical importance.

The Spatiality of Clustering as Policy Focus

Reflections and Concerns

Even as a surging literature on GPNs has been reinforcing the potential of such an arrangement of globally spaced out subcontracting, there remains a small but insightful set of writings which draw our attention to the strangely digressed issue of labour (‘disposable people’) and informality (eg., Bales, 2000 and Seabrook, 1996). These bring out the systematically exclusionary nature of such heavily controlled/manipulated forms of governing production and allied activities. It is rather disturbing that the discourse surrounding this form of subcontracting has hardly even made mention of a huge amount of work conducted in the developing economies focusing the informal sector dynamics. Further, there are no details about labour contracts, skills development, work organisation and worker participation, labour-management relations, wages, etc. not to mention the threat to a wide ranging labour rights.

In fact, as Harvey (2011: 168) would put it, by establishing flexible labour markets and curbing/dismantling the powers of trade unions and other working-class institutions, “technologically induced shifts in job structures…render large segments of labour force redundant” and that completes the “domonation of capital over labour in the market place. The individualized and relatively powerless worker then confronts a labour market in which only short-term contracts are offered on a customized basis.”

Concluding Observations

The case of leather clusters of Tamil Nadu underscores the experience that in a situation of overwhelming presence of informality and socio-economic inequality, subcontracting between unequals would typically take advantage not only of lower labour costs but weak/non-existent labour institutions. It can happen with greater speed, depth and ‘success’ when the state or the dominant agency of transacting business collude with the stronger of the links, particularly, if those happen to be powerful multinationals.

Even when state has played a proactive role in promoting this industry and its external orientation, informality in the labour process remained a deep-seated reality (Damodaran, 2005).

The invisibility of the work at the lower rungs of production organisation renders governance of value chains a blip and such subcontracting squarely benefits the dominant agent(s).

Select References

Bales, K. (2000), Disposable People: New Slavery in the Global Economy, University of California Press, Berkeley.

Damodaran, S. (2005), ‘State Policy, Export Orientation and Labour: An Analysis of the Links in the Leather and Leather Products Industry’, Indian Journal of Labour Economics, 48 (4), pp. 981-996.

Das, K. (2005), ‘Industrial Clustering in India: Local Dynamics and the Global Debate’, in K. Das (Ed.), Indian Industrial Clusters, Ashgate, Aldershot, UK, pp. 1-19.

Das, K. (2011), ‘Regional Value Chain in Industrial Clusters: Pointers from the Leather Clusters of Tamil Nadu, India’. Paper presented at the Stakeholders Consultation on Strategic Partnership for Policy Development and Action to Foster Regional Cooperation in South Asia, organized by RIS, New Delhi, June 13.

Entrepreneurship Development Institute of India (2009), Diagnostic Study of Leather and Leather Products Cluster of Chennai, available at http://msmefdp.net/ResourceBank/Diagnostic%20Study/ Chennai-DS.pdf

Harvey, D. (2011), A Brief History of Neoliberalism, Oxford University Press, New York.

Knorringa, P. and J. Meyer-Stamer (2008), ‘Local Development, Global Value Chains and Latecomer Development’, in J. Haar and J. Meyer-Stamer (eds.), Small Firms, Global Markets: Competitive Challenges in the New Economy, Palgrave Macmillan, Hampshire.

Nathan, D. and S. Sarkar (2011), ‘A Note on Profits, Rents and Wages in Global Production Networks’, Economic and Political Weekly, 46 (36), pp. 53-57.

Roy, S. (2009), ‘Footwear Cluster in Kolkata: A Case of Self-Exploitative Fragmentation, Working Paper No. 2009/02, Institute for Studies in Industrial Development, New Delhi.

Seabrook, J. (1996), In the Cities of the South: Scenes from a Developing World, Verso, London.