Manufacturers of Footwear Technologies: where to export ?

The Covid-19 emergency is significantly increasing risk factors on the international scene. In this phase of uncertainty, in addition to monitoring the risks and adopting the appropriate contingency plan, it also seems far-sighted to equip oneself with analysis tools and implement strategic planning activities to achieve the restart phase of the international economy, once the health emergency has normalized.

This article is intended to offer some analytical insights for a well-considered international market selection¹ regarding the footwear machinery, tannery, leather goods sector. In particular, the subject of this article will be the business area of Footwear Machines².

In 2019 the world trade in Footwear Machinery nearly reached the record threshold of $650 million (ExportPlanning's pre-estimates). However, as you can see from the graph below, the growth dynamic has mainly affected medium-to-low price segments: last year, the medium-low price segments reached $315 million, almost 50% of world trade; the mid-range segments reached - for the first time - $213 million.

Assessment of Opportunities and Threats at a Business Unit level

In the business area of Footwear Machines, among the markets with high growth potential, Vietnam stands out, since it is by far the market driving world demand in the last two years: in the period 2018-2019, according to ExportPlanning's pre-estimates, Vietnamese imports of Footwear Machines have more than doubled overall, exceeding $260 million³.

Vietnam: a strong growth market,
but particularly competitive ...

However, for the Vietnamese Footwear Machinery market, the following attention elements should be noted:

• low importance of premium-price segments: Vietnamese imports of Footwear Machines are essentially attributable to low-medium price ranges, while the incidence of mid-high price ranges appears marginal (see the graph on the left below);
• strong competition from countries with low labor costs: competitive pressures on the production cost side appear particularly significant, with an estimated average cost of foreign competitors on the market of 10.1 US dollars per hour.

... unlike - for instance - France,
which is a "mature" but also "rich" market.

As regards the top potential markets in terms of premium segments for Footwear Machines' imports, the case of France should be hihglighted: considering the breakdown by quality/price segments of Footwear Machinery imports on the French market (see graph on the right above), as much as 96% can be attributed to the High and Medium-High price segments.

Assessment of Opportunities and Threats at an End-User industry level

The analysis of world trade flows of Footwear products⁴ confirms the absolute relevance of Vietnam, with a value of footwear exports equal to $26 billion last year (ExportPlanning's prestimates: see the graph on the left below).
On the other hand, export flows of France - although growing - are confirmed at much lower levels ($4.4 billion).

The analysis of these flows for quality/price ranges brings further insights:

• still relatively limited but growing importance of premium segments for the Vietnamese Footwear exports (with exports in the medium-high range last year reaching over 34% of the total exported from the country: see the graph on the left below), indicating, therefore, - albeit indirectly - prospects for a contextual upgrading of the demand for technology;
• high incidence of French Footwear exports in the highest categories (84% of the total exported), indirectly confirming the need for demand for quality technology.

Conclusions

The selection of the target market portfolio, in addition to an analysis of the overall market evolution, should not ignore - especially for companies positioned in quality segments - also the segmentation of the market by quality/price ranges, concerning both the business unit of interest and the related end-user sectors.

The possibility to segment markets (and related competition) by price ranges can stimulate:

• a more conscious evaluation of the potential of the different markets;
• a reflection on the long-term sustainability of positioning in markets that tend not to recognize an adequate premium-price (and that see significant pressure on the labor cost side of competitors), suggesting the need for an orientation towards the most suitable markets to pay a price differential for quality.

1) A key tool for achieving this objective is the use of a transparent and shared decision-making process. Only, in fact, decisions obtained in a transparent manner and with the participation of all company functions can be quickly reshaped in the face of unforeseen facts, while still guaranteeing a compact and coherent company response. See the article "Data-driven Decision-making Processes".
2) We would like to thank the staff of Assomac (Italian Association of Manufacturers of Footwear, Leathergoods and Tannery Machines) for their collaboration in the drafting of this article.
3) Vietnam has a significant specialisation in shoe manufacturing, making it the world's second largest producer of footwear. It should be pointed out that Vietnam benefits from privileged relations with China, both of a fiscal nature and by virtue of significant settlements of Chinese footwear producers. Furthermore, Vietnam has been able to attract foreign direct investment from important international fashion brands, led by the USA and Europe. 4) The products of the Footwear sector here considered are listed in the following description table.