India Gold Fish Leather

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So our biggest customer is this German company. First class. Top of the line. Look at these pictures. That’s our leather. Look, here’s a purse; here’s a wallet; here’s some shoes—we didn’t make the shoes. Beautiful aren’t they? This German company wants to ship our leather to its plant in Spain. But when the Germans saw our costs, well, they think maybe they’ll move here. We’re so sure about how good our skins are we made this company pay 50 percent up front when it placed the order. How much? Four thousand square feet. If the Germans like it, they’ll order all we can produce, full capacity, maybe 5,000 square feet a month. How’s that for one customer? See what I mean—great business. Can’t lose.

The problem is—and it’s the same problem for any company here—we’re OK for the small volume runs when we can watch everything. We’re contracting out the processes that require the big investment in machinery. And that’s OK so long as we can watch them all the time. Now, looks like we’re about to be really successful and we can go to big volumes pretty easy. But if we contract it out in big volumes, the quality will go down, sure as sure. We have to do it ourselves.

But where do we get the money? My partner John and 1 have, maybe, $50,000 in net worth between the two of us. My Indian friend, Anil, isn’t interested in investing in fish skins. He likes wood. In fact, he loves wood. He says to me, “I can go out and count my trees. See, there they are: one, two, three—all those are my trees. How am I going to count fish? They’re in the ocean under all that water. Trees are better.” He ought to know. He’s got 20,000 hectares [50,000 acres] of them.

I’ve got a house and a car and some furniture and something in the bank. Enough to live on for a few months. We can forget about borrowing locally from a bank. My Indian friend won’t guarantee a loan, either.

But if we’re going to really do this the right way, we’ll have to do it ourselves—with our own equipment, our own production workers and supervisors, everything ourselves. Have to keep the quality up. That’s the problem in India: getting high and consistent quality. Without it, we just can’t compete on export markets. The good news is we’ve got the lowest costs of fish skins on this planet—on this planet—bar none. But low input and labor costs without quality is nothing. Right now there are maybe 15/20

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companies in the world making fish skin leather. Last year there were maybe 10. Next year maybe there will be 100. I don’t care; it doesn’t matter. We can be competitive. Our costs are the lowest and always will be. Too many people—look at this place, will you? Too many people looking for jobs. And we can provide them with jobs. And make profits, too. Would you believe a 40 percent profit margin (excluding my partner’s and my time), even when we contract our work out? I figure that if we did everything ourselves, our total costs would go down to less than $1 per square foot.

The government will love us: upgrading, value added, labor intensive, 100 percent exports. We’ll get all the incentives. What incentives? Well, maybe they’ll permit majority foreign ownership, maybe a promotional fair someplace. We had a booth at the Delhi Fair for free. No export taxes. What else? Not much, come to think of it. At least they aren’t against us. Neutrality is about as much as you can expect here. That’ll sure be enough for us. But what’s going to happen in a few years is they’ll ban leather exports to force companies to add additional value in India. Look at what they already did for leather “crust” [leather after the first stage of processing]. Now that’s leather from cows; that law doesn’t apply to us. But fish leather will come, maybe soon. I don’t know. So we’ll have to go for finished products sometime—and that’s way bigger money than I’ve got.

What about the board of investment? Yes, that’s a problem. Right now we’re registered as a private firm with the Ministry of Industry under my friend’s name. What’s that kind of company called again? I forget. Anyway, if we get bigger than we are now, that may be a problem. But we’ll still be too small for the board of investment to allow us to register as a foreign joint venture. We’ll need more than $100,000 just as a start. Lots of workers, lots of exports, not much capital. The board of investment is not receptive to foreign joint ventures in small companies like us. You got to have big bucks if you’re a foreigner before they’ll look at you, much less let you in. Why? I don’t know why.

We’ve got all kinds of offers to form joint ventures. Just had one today. We talked all day. They want to invest $100,000 for half the ownership, 50-50. Well, it’s not bad; but it’s not good, either. We’ve started this thing, stuck our necks out, spent our time, and now they want to come in and get half for $100,000. With this amount of investment, we’d only be able to produce maybe 100,000 square feet a year. Enough as a start, but not for the long run. Everyone likes our product. Can we borrow from a bank? Try selling a bank on the idea of loaning money to produce fish leather. They just turned up their noses at us. And anyway, interest rates for a small business like ours are over 20 percent—even though the inflation rates is only 12 percent. Interest payments would kill us.

So what are we going to do? You’re the case expert. You tell me! Give me a call on Monday.

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