Solutions for Development of Industrial Infrastructures

Strategies for Development of Industrial Infrastructures (A Case Study: Leather Industry)

1) Dr. Nasser Fegh-hi Farahmand
Department of Industrial Management, Tabriz Branch, Islamic Azad University, Tabriz, Iran
E-mail:farahmand@iaut.ac.ir

2) Dr. Mohammad Dabbaghi Sadr
D.B.A. Strategic Management, Tabriz, Iran
Managing Director of Sadra Tannery
E-mail: mdsadr@yahoo.com

Abstract

The need to keep up with rapid and increasing universal changes has encouraged Iran to take reasonable and appropriate measures in the current competitive and prevalent situation. Formulating development strategies to be implemented in industry sector and in particular leather industry is among the aforementioned measures. These measures will help Iran to come out of its passive state and become an actor in the global developments. Appropriate growth and comprehensive development build the foundations of powerful societies. In order to shape the opinions of statesmen and managers of leather industry and to identify ways to fulfill the goals of this industry, conducting an investigation into development of infrastructures and facilities of leather industry has been added to the agenda. Much similar research has been carried out in other industries. This will increase the awareness and knowledge of the relevant officials and managers and help them develop suitable strategies for the development of infrastructures of leather industry in Iran. Research questions are as follows: What are the components of infrastructure development model suitable for leather industry? Based on these components, which model is best and most appropriate for the development of infrastructures of leather industry in Iran? The study is a descriptive – survey research. Systematic random method is used for sampling. Library and field research methods are used in the study. Internet, international article databases, interview, and finally, questionnaire were used as the data gathering tools. The collection includes seven components: internal human resources, external human resources, support and sponsorship, regulations, technology, business dealings and innovation.

Keywords: Development, Infrastructure, Industry, Leather, Strategies

Introduction

Development of industrial units takes place in certain conditions. That is why we have witnessed different models in this field. All the managerial decisions and actions determine the long-term performance level of an organization. Environmental assessment, strategy formulation and implementation, and free market evaluation, control and competition can be considered as the most important reasons as to why economic organizations need strategies. Essentially, the most important part of any organization’s management issues is to “describe and explain the weaknesses, shortcomings, strengths, opportunities and threats”. Planners and managers should also consider some political assumptions. Political assumptions refer to future situations that may be added to the current conditions or even replace them. According to history, leather and tanning industries were introduced into Iran long before the arrival of Aryans. Today, countries that were once globally known for their leather production are experiencing stagnation and have become alienated. We know tens of individuals who have put brick on brick to build what is now known as Iran’s leather industry and a symbol of their capabilities and pride. However, this industry has not experienced any constant development and has been transformed into a body composed of stagnant and inactive industrial units (Nasirian, 2011). Iran’s leather industry has always played an important and undeniable role in domestic, regional and even global macro-economy. However, it is currently dealing with several problems and difficulties including sharp rise in raw materials prices (both domestic and foreign), similar imported goods, loss of experienced workforce, lack of working capital, recession, inflation, falling behind the international production flow. The pressures that are the result of the aforementioned problems are gradually transforming the once familiar production cycle to a complete stranger that seems extremely dangerous and risky more than ever before.
The development rate of livestock breeding tanning and slaughtering industries is slow and incomparable. The fulfillment of predetermined goals of leather industry is dependent upon the balanced development of the industry, as well as, the favorable development of livestock breeding, tanning, and slaughtering industries. These will eventually complete the value circle of leather industry because Iran’s livestock breeding, tanning and slaughtering industries are currently faced with various problems and barriers. The products of these industries have not only entered the global markets, but also, they cannot compete with other similar products available in domestic market. As a result, these products continue to survive only due to the unsustainable supports of the government. Despite attracting the special attention of policymakers, the development of such industries is not yet at the level of international standards. All the companies that are actively operating in Iran’s leather industry are under constant internal and external pressures. This will create difficulties and barriers for their development process. The prospect of all business and industrial companies around the world is set toward acquiring global capabilities, i.e. globalization. To achieve this, organizations should increase their abilities so that they can meet quality criteria and standards acceptable to international markets. Undoubtedly, the emergence of new technologies poses a wide range of threats to organizations and makes them come along with international developments. Therefore, it is necessary to formulate new strategies and find new solutions to deal with such problems so that the survival of organizations could be guaranteed.

Factors Influencing Development of Industrial Infrastructures

Development platform refers to the space and environment in which components of infrastructure can effectively and efficiently grow and develop. It is as important as the development process itself. Key drivers of development infrastructures can only be activated through creating and accurate understanding of this environment. The preparation of development platform requires a transitional period. In this period, centralized and focused policymaking and providing the necessary requirements for the establishment of development foundations are of utmost importance.
Animal skin is the only good that has always been with humans from the moment they were began their life on earth. There are verses in Quran, Torah and Bible that describe how humans used animal skins as their own clothing. Long ago, early humans used animals to meet many of their most basic needs. They hunted animals for food and used their skin to make shoes, shields, leather armors, leather combat helmets, leather quivers, boots and etc.. Today, despite the passage of centuries, animal skin is still considered as one of the major materials used for making clothes, apparels, and other accessories. It is also used as decoration. Thus, animal skin has maintained its economic and industrial values. Currently, leather production has become a major and big industry.
Leather is one of Iran’s most significant livestock products. About 80 years ago, we witnessed the birth of mechanized leather production in Iran. Consumer culture, old manufacturing technologies and the need to provide shoe and other leather products encouraged artisans and leather industry to import animal skin and even cattle leather. Thus, few cases of shortage in raw materials (animal skin) were dealt with. On the other hand, sheepskin is less welcomed by consumers. Furthermore, Iran does not possess the updated technology to process the material and is interested in the foreign exchange earned through exporting this valuable product. Consequently, sheepskin is often imported as pickled skin. This has increased the price of picked skin used by domestic production units which has resulted in the rise in the final price of sheep leather and consumers’ lack of interest in related products. However, only 15% of Iran’s leather production cycle is allocated to the production of picked skin. As a result, Iran’s economy is deprived of added value of the other products (i.e. the remaining 85%). According to the existing data and statistics, theoretical production capacity of Iran’s leather industry is more than the produced raw skin (Ansari, 2008).
In today’s business environment, aggressive competition is gradually becoming dominant. As a result, the battle to succeed is becoming much harder. Today, organizations that enter the competition become weaker due to the numerous and different business methods and the need to understand all of them. One of the factors that is causing all these changes is continuous and revolutionary developments in the field of technology. Due to this fact, the key success factors within small and medium businesses have been developed as a strategy aimed at maintaining long-term relationships with customers. Lack of a specific model for guiding organizations through implementation of this strategy is considered as a major barrier that impedes organizational success. Each organization has its own unique culture, business processes and etc.. Thus, focusing on work as a magical solution that can resolve all the problems of an organization is of no significance. On the contrary, one should identify the effects and advantages of work in his own organization so that he can use it to his best advantage and achieve success. When a manager calls his own organization a customer-oriented organization, it will be necessary to develop capacities and improve facilities to obtain the necessary resources. Gathering the required data and information and using adequate tools are also essential for meeting customers’ demands and providing appropriate products and services. Unfortunately, many organizations, especially financial institutes, have a commodity-based culture that can be inconsistent with customers’ expectations. Such organizations are willing to deploy product-based processes rather than customer-based processes. Moreover, these organizations have some inherited customers who often are not profitable and lack the capabilities to develop any strategy. Our goal is to present you with key factors that make organizational strategies successful. Organizations that would like to further develop and succeed can use our findings as a guideline or instruction. These factors cover the three key concepts of all strategies including workforce, processes and technology.
The aforementioned factors guarantee the successful implementation of organizational processes by fulfilling the need to adopt a balanced and integrated approach toward technology, workforce and processes. After analyzing the factors, it can be concluded that these factors can be improved, analyzed and adjusted to different markets in which they operate. Based on the analysis results, it can be suggested that the overall assessment has produced positive results and the selection of these key factors is the starting point of a process that evaluates the strategy to implement the key success factors in an organization, according to systematic standards. Organizations do business in order to build up and maintain their customers. Therefore, the successful implementation of organizational processes and the need to maintain customers are of utmost importance and this is something to do with the internal affairs of organizations as they have now changed their business methods. Organizations have adopted new approaches toward their relationships with customers due to a wide range of reasons. In the new market environment, the relationship between an organization and its customers can help it survive. The following are reasons for the failure of organizations.
Phenomena such as individuals and organizations are not willing to be eliminated. In their interactions with the environment, they always do their best to develop and survive and are interested to establish and follow new relationships. These new relationships are not based in the confrontation with the environment. On the other hand, they combine with the environment and welcome general changes and developments. Thus, the external environment does not force individuals and organizations to change. In fact, individuals and organizations integrate with the environment and seek to establish favorable internal relationships with the environment. Individuals, organization, and environment change simultaneously.
Analyzing the results
The present research is studying the development method for infrastructures of leather industry of Tabriz. the researchers has prepared a questionnaire for studying the development infrastructure of leather industry in two parts that first part includes questions in relation to individual identity of the answerers and second part has considered 179 case as the influential elements after studying the available literature for developing and improving the function of leather industry. The functions were divided to seven groups and were evaluated in seven choice scale of Likret as follows:
Internal-organization human resources, human resources out of organization, support, laws, technology, trade relations and innovation
The descriptive statistics of the data in the present chapter first studies the anthropological variables (age, education, etc). The second part includes descriptive statistics of the questions in questionnaire and analytical statistics are given in the third part. In the present study, Klomogrov-Spirnov test is used to analyze the normality of the variables and determining the type of the test for studying the data that results present the normality of the variables. In order to test the given model and finding suitable model for research, multi-variable regression is used. The tests of comparing the mean and variance analyses are used to study the influence of the anthropological variables in response to related questions of the hypothesis. In order to determine the gender of the sample individuals, one of the questionnaire questions asks in this regard as Table 2.

As it could be seen in the table, 118 (98/34 percent) of the statistical samples are man and 2 (1/66 percent) are woman and it shows that there are low number of women who work in leather industry. It shows that unfortunately this industry do not employ woman. It could be related to culture or lack of education in this regard. In comparison with developed countries, mostly women work in the final stages of production (painting, sorting and packing) that influences the quality of the leather. Unfortunately women are not used as work force in this field.
From educational standpoint, the statistical samples are classified to 5 groups. The following table shows their education level as Table 3.

As it could be seen in the table, around 20.84 percent of the population (25) are uneducated or less than high school diploma, 37.5 percent (45) high school diploma, 16.67 percent (20) associate course, 15.48 percent (19) B.Sc, 6.66 percent (8) M.Sc and 2.5 percent (3) PhD. Most of the research population was of high school diploma education level.
Considering the work experience, the statistical sample were classified in 6 group, table 4 shows their level of experience as Table 4.

As it could be observed from the table, 120 of the statistical sample around 25 percent (30) have under 1-3 years of experience, 25 percent (30) 4-7 years, 12.5 percent (15) experience of 8-10 years, 14.16 percent (17) experience of 11-15 years, 15 percent (18) 16-20 years and 8.33 percent (10) have more than 20 years of experience.
Considering the age of the sample, they could be classified in 6 groups that table 5 shows their condition as Table 5.

According to the information inserted in table, 12.5 percent (15) are 20-30, 16.67 percent (20) are 30-40, 22.5 percent (27) are 40-50, 31.67 percent (38) are 50-60, and 12.5 percent (15) are between 60 to 70 years old. The rest were unanswered. The number of personnel in each production unit is as Table 6.

Most of the companies in leather industry have less than 20 workers that show the smallness of these units. According to previous studies, in developed countries there are more than 50 workers in factories of this field (WTO. 2010). After analyses, interviews and considering the records of the research, the suggested model of the researcher are as follows:
According to the gathered information through library studies and interview with experts of the field, the influential elements on leather industry were recognized and since after data collection through tests first elements were in acceptable condition, an analysis was carried out. Table 9 shows that the suggested model is valid for development of the leather industry. Table 7 shows that R2 is 0.989 and it shows that independent variables in the model form 98.9 percent of the variable changes in leather industry. Considering the available scales this model is acceptable. Considering ANOVAs table, α of the table is 0.000 and F of the table is 648.128 that show its acceptance.

Fig. 1 – Final Strategy for Leather Industry Development

As it is shown in Fig. 1, the strategy as a whole is statistically approved. It also indicates that internal human resources (0/624), external human resources (0/079), support and sponsorship (0//140), innovation (0/432), regulations (0/086), and technology (0/198) can be effective in performance improvement of leather industry. Surprisingly, business dealings have an inverse effect on the development of leather industry.

Conclusion

This study is aimed at finding an appropriate strategy for development of leather industry’s infrastructures and thus, improving organizations’ performance. It is based on similar studies conducted in various industries so that research questions can be adequately answered.
1) What are the components of infrastructure development model suitable for leather industry?
2) Based on these components, which model is best and most appropriate for the development of infrastructures of leather industry in Iran?
Research structure and method were determined according to research questions. Accordingly, a research model was introduced. In this section, the relationship between leather industry’s infrastructure and organizations’ performance was fully understood. Research tool that was obtained through interview was finally approved and was delivered to the sample. The required analysis was performed after data collection and classification. Based on the findings and summarized analysis results, some recommendations are offered. The proposed model for the development of leather industry’s infrastructures was formulated using the components derived from theoretical foundations, experimental background and elements included in the questionnaire.
The first proposed strategy deals with the development of suitable infrastructures for the leather industry in Iran and therefore, it is not comparable with other models (due to lack of any other model). Components of internal human resources scored as follows: having experienced instructors in the field of leather production at universities (387), instructors’ awareness and familiarity with world’s new leather technologies (355), benefiting from Iranian leather experts and technicians (347), benefiting from foreign leather experts and technicians (276), professional training of workers employed in the leather production units (388), education level of managers in leather industry (369), education level of workers in leather industry (397), the need to add leather production as a new field of study to universities programs instead of treating it as minor course in chemistry (344), the capability of the existing workforce to repair machinery and equipment (347), leather buyers’ attention to enforcement of standards (363), commitment of the personnel employed in leather production units (369), employers’ commitment toward workers and personnel (352), interest in leather production (297), and friendly relationship between managers and personnel (335). Components of external human resources achieved the following scores in the questionnaire: industrial expertise of officials at the Leather production Union (317), industrial expertise of officials at Charmshar (324), industrial expertise of officials at refineries (316), industrial expertise of officials at Ministry of industry, Mine and Trade (347), industrial expertise of officials at Customs Department (385), industrial expertise of officials at Environment Organization (384), industrial expertise of officials at Veterinary Department (3875), industrial expertise of officials at slaughterhouses (361), industrial expertise of officials at municipalities (388), Industrial expertise of officials at Ministry of Agriculture (381), industrial expertise of officials at Department of Finance (385), and industrial expertise of officials at Social Security Organization and insurance institutes (434).
Components of support and sponsorship have the following scores: external expert’s help and support in repairing machinery and equipment (359), support and sponsorship received from Department of finance (435), support and sponsorship received from Ministry of Industry, Mine and Trade (366), support and sponsorship received from Customs Department (392), support and sponsorship received from Environment Organization (386), support and sponsorship received from Water and Wastewater Department (426), support and sponsorship received from Ministry of Energy and Department of Electrical Power (365), support and sponsorship received from municipalities (394), support and sponsorship received from slaughterhouses (380), support and sponsorship received from Ministry of Cooperatives, Labor and Social Welfare (397), support and sponsorship received from Ministry of Cooperatives, Labor and Social Welfare by employers regarding their workers (389), support and sponsorship received from Veterinary Department (403), support and sponsorship received from Standard Organization (396), support and sponsorship received from Social Security Organization and insurance institutes (362), responsibility of raw material suppliers toward quality of raw livestock skin (408), support and collaboration of leather buyers (402), interaction and collaboration between leather industry’s institutions and organization in comparison with other countries renowned for their excellence and expertise in leather industry (396), manufacturing consultation (management, production stages and market identification) (382), and available accommodation and facilities (mosque, park, green space, etc.) at Charmshahr (414).
Traditionalism is one of t
He major factors that impedes and slows down the development of leather industry in East Azerbaijan province. In other words, the following factors have negatively influenced the development of leather industry: lack of updated and appropriate technology, little utilization of world’s latest scientific experiences, absence of R&D department and well-equipped labs in production units, ignoring the required standards regarding raw livestock skin (from slaughtering stage up to tanning stage), and not meeting the required standards for chemical raw materials used in tanning. Components of technology achieved the following scores: utilizing global and scientific experiences (391), chemical material production technology in Iran (369), a well-equipped laboratory for each production unit (405), a R&D department for each production unit (415), chemical material production technology abroad (173), Iranian-made chemical material consumption (202), foreign-made chemical material consumption (159), use if Iranian-made leather production machinery (318), use of foreign-made leather production machinery (161), meeting international standards in leather production process (370), standardizing livestock skin shipment methods (406), standardizing livestock skin loading method (406), standardizing livestock skin care method (406), and the amount of outsourced work (374).
Components of regulations scored as follows: dispute resolution authorities of leather industry (384), legal dispute resolution authorities able to solve problems between livestock skin sellers and consumers (407), legal dispute resolution authorities able to solve problems between leather producers and consumers (402), monitoring the fulfillment of standards in Charmshahr (located in Tabriz) (391), monitoring the fulfillment of standards by Union of Leather Producers of Tabriz (388), Monitoring the fulfillment of standards in refineries (401), setting a specific timetable for collecting the receivables in all leather production units (411), setting a specific timetable for debt payment in all leather production units (407), reviewing and reconsidering existing regulations of Ministry of Cooperatives, Labor and Social Welfare (382), bilateral nature of regulations concerning workers and employers (375), specificity of task division between workers (299), managers’ control over work (343), related documented regulations (381), and related undocumented regulations (385).
Components of business dealings achieved the following scores: standardizing livestock skin purchase method (396), standardizing chemical material purchase method (377), considering the required standards while purchasing machinery and equipment (362), paying attention to consideration of standards by buyers of livestock skin (403), paying attention to consideration of standards by leather buyers (390), and sales consultants (livestock skin, chemical material, machinery, and leather) (385).
Components of innovation scored as follows: willingness to purchase new machinery (83), willingness to buy second-hand machinery (282), willingness to produce garment leather (243), willingness to produce shoe leather (117), willingness to produce car and home upholstery leather (145), willingness to produce outsole leather (274), and willingness to produce saddlery leather (294).
Components of performance had the following scores: satisfactory partnership with colleagues in the leather industry (156), collaboration and interaction between colleagues in the leather industry (132), this year’s rate of return of capital compared with the previous year’s (128), this year’s average rate of productivity per worker compared with last year’s (147), this year’s timetable for introduction of goods and services into the market compared with previous year’s (150), this year’s complaint response time (customer satisfaction) compared to previous year’s (131), this year’s market share compared with previous year’s (141), this year’s business dealings’ costs compared with previous year’s (153), this year’s customer satisfaction rate compared with previous year’s (154), this year’s number of implemented proposals compared with previous year’s (146), this year’s number of new products and services compared with previous year’s (151), this year’s proportion of skilled workers to the total workforce compared to previous year’s (161), this year’s percentage of total expenditures allocated to technology and information processing compared with previous year’s (158), and this year’s number of workers volunteered for learning new skills compared with previous year’s (153).
Ignoring the management issues and especially the essential elements including trade and marketing is considered as one of the major problems of producers in the leather industry. The majority of producers are not familiar management knowledge and techniques. The laws and regulations adopted by related government entities do not provide the adequate facilities required for the development of leather industry. Leather production units should pay more attention to the standard requirements of raw materials and try hard to produce standard leather. Furthermore, they should welcome innovation, observe trade principals and review their annual performance. These measures will have significant impact on the enhancement and development of leather industry’s infrastructures.

Recommendations

The strategy for development of suitable infrastructures for the leather industry in Iran is recommended to be implemented in Leather Producers Union and Chrmashar. Considering the components of internal human resources, it should be noted that there have been weaknesses in making the best use of foreign experts’ knowledge and expertise and we have also witnessed unwillingness toward leather production. Therefore, it is necessary to develop an appropriate program to improve the condition. According to the proposed strategy, components of internal human resources have a positive impact on an organization’s performance. Therefore, the aforementioned neglected components should be more emphasized in order to improve organization’s performance. Furthermore, establishment of a leather production programs at vocational schools will provide a new opportunity for leather industry’s workers to improve their skills and increase their knowledge. Instead of establishing a new school which is only dedicated to provide training in the field of leather production and spending a huge budget on it, it would be better to add a leather production program to the list of programs offered at existing renowned universities. External human resources’ share in repairing machinery and equipment is very limited. Increasing their contribution will help improve the performance of organizations in the leather industry. It would be better to benefit from the knowledge and expertise of leather specialists in related organizations and departments instead of employing unskilled personnel. If organizations and departments have difficulty in recruiting skilled personnel, they can seek help from Union or Charmshar. Authorities of the Leather industry should have experience in management and legal issues so that they can provide the necessary supports.
Since the use of foreign chemical raw materials and the existence of R&D departments in organization achieved the lowest and highest scores, respectively, getting familiar with world’s latest knowledge can help the industry acquire new skills and technologies. This will be realized under two conditions. First, we should be able to fluently communicate in English. Secondly, we should pave the way for the development of the leather industry.
Rigid and strict rules and regulations impede development. However, leather industry’s problems are due to the fact that minor rules and regulation are observed. If managers and authorities are well aware of these problems and their solutions, they can help the development process of leather production units. Since consideration of necessary standards while purchasing machinery and consideration of standards by raw livestock skin buyers achieved the lowest and highest scores, respectively, the leather industry has always faced difficulties in its business dealings. These problems are mostly due to the fact that managers and authorities of the leather industry are not familiar with the some modern sciences including accounting and auditing. There are always some regulations and standards that should be considered while purchasing the raw materials (livestock skin) needed in leather industry. However, suppliers of raw livestock skin do not necessarily observe these standards and regulations and show no commitment on the quality of what they have sold. They do not deliver the raw livestock skin before payment and settlement. Furthermore, quality defects will only be identifiable after several days and during the tanning process! Thus, development of leather industry depends on fulfillment of two requirements. First, the raw livestock skins used in leather production should be standardized so that the final product (leather) can be of high quality. Consequently, consumers will no be able to complain about leather’s low quality. This will cut irrational loss and deficits and preserve the status of producers against consumers. Leather consumers are highly skilled and knowledgeable enough to cover and repair the defects and faults. As a result, leather producers should acquire the necessary knowledge and information about shoemaking, and manufacturing process of all leather products so that they can stand up against the unreasonable complaints of consumers.
Since willingness to purchase new machinery and equipment and willingness to produce saddlery leather achieved the lowest and highest scores, respectively, so long as leather producers are willing to purchase old and second-hand machinery due to the high prices of new machinery and consumers are not interested in new products, even considering innovation and innovative ideas seems a very hard task. However, production without innovation can only lead to stagnation and evanescence. This year’s rate of return of capital compared with the previous year’s and this year’s proportion of skilled workers to the total workforce compared to previous year’s achieved the lowest and highest scores, respectively. Organizations and production units that don’t collect feedback about their annual performance in areas including sales, purchases, competitors, workers, expenses, etc. and follow traditional procedures, should take measures to minimize the loss they inflict upon the leather industry. After solving their problems, they can think about formulate and implement their own development plans.

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