The modern light industry of the Russian Federation is a set of specialized economic sectors that involve the production of mass consumption goods and services from different types of raw materials. The textile, leather, fur, footwear, apparel and innovation groups included in it have every reason to become the engine of the country’s economic development.
Light industry is a strategic industry for Russia. According to the methodological documentation in the sphere of light industry development strategy — the main competitive advantages of the Russian Federation are the presence of developed oil and chemical industries and the presence of developed industries-consumers of industrial textile products, but these advantages are not yet realized. Against the background of the ever-increasing role of chemical materials in the light industry, Russia has a significant potential for development in this area. In the aggregate, the implementation of development directions will make it possible to increase the volume of the industry one and a half times (by 0.5% of GDP). In addition, it will be possible to overcome the natural reduction of employment in the industry and create up to 245-330 thousand new jobs . This fact determines the relevance of the topic under consideration.
One of the main branches of the light industry under consideration are the leather and haberdashery industries and, consequently, their overall economic sphere. Despite the rich history and centuries-old experience of creating the highest-class products, these industries after a significant, almost fatal decline in the 90s of the last century, as well as already modern pandemic Covid-19, which had a significant impact on the entire world economy, and against the background of the current foreign policy crisis have serious prospects and opportunities for development. However, there are also a number of difficulties and problems. For example, the negative consequences of Covid-19 led to a supply shock to a certain extent. IMF experts have highlighted problematic aspects in economic development during the spread of the virus. They are expressed in the reduction of labor supply, as well as the absence of workers at their places for various reasons. Reduction of both demand and supply in the crisis economic situation in the country led to a drop in the income of enterprises.
The current situation of political and economic relations with other countries, and the consequent withdrawal of a number of brands and suppliers, has also provided the groundwork that could allow for a significant leap forward.
According to a number of studies by analytical agencies, the critical point of decline in leather goods production in the Russian Federation over the past 10 years was in 2020. According to ACG estimates, the production of leather goods and haberdashery goods decreased by 20.7% compared to the same indicator in 2019. The production of suitcases, handbags, ladies’ bags and similar articles made of genuine leather, combinations of leather, plastic sheets, textile materials, vulcanized fibers or cardboard decreased by 7.6% .
The fact that the industry in question is supplied with raw materials deserves special attention. For example, from 2014 to 2018, sales of raw hides and skins of cattle in Russia decreased by 5.2%. The domestic market experienced a deficit due to the high profitability of their export. Raw materials were sold abroad for foreign currency, which was a more preferable payment option . However, today in the Russian Federation, tanneries are striving to work on domestic raw materials.
It should be noted that production growth rates are limited precisely by the volume of raw material base. The main criterion for assessing the volume of raw materials for leather goods is quantitative, i.e., the number of livestock at the enterprise. Thus, according to Federal State Statistics Service, in the first quarter of 2020, the number of cattle in Russia decreased by 2.2% compared to the same period of 2019, pigs – by 4.5%, goats and sheep – by 2.4% .
The previously mentioned Covid-19 pandemic was the very factor when there was an increase in the volume of purchases of natural leathers on the domestic market. Most companies began to plan their own strategies to strengthen their market position in a difficult economic environment.
Along with this, it is important to note that the tannery industry has many production features that affect the location of the company, due to the strong impact on the environment. Tanneries are the fourth most polluted industries in the world . This imposes additional constraints and increases production costs. For example, tannery production requires a large amount of water at many stages of raw material processing, and the chemical and organic substances used pollute water. This includes elements such as chromium, aluminum and others used in leather processing. Large amounts of sodium chloride, which is used as a preservative for raw hides, as well as particles of fat, meat, sinew and wool also pollute the environment.
Analyzing this branch of light industry in the first 20 years of the XXI century, experts recorded the fact of equipment obsolescence, which could not process raw materials in the required volume and high quality, as well as the lack of technologies for the production of elite varieties of leather, and, consequently, incentives to improve the quality of raw materials and increase prices for them. Small farms are unable to organize raw material supply, as they cannot always afford to hire highly qualified specialists and ensure delivery of raw materials to the place of their processing. In turn, the lack of productivity growth leads to the inability to increase purchases of raw materials on the domestic market at favorable prices for livestock breeders.
At the same time, it is important to note that the rates of development of domestic production and demand differ markedly. Thus, according to average estimates, the growth rate of production is about 4%, which is twice less than the growth rate of demand. This indicates that the growing demand can be satisfied by import supplies, and their growth would outpace production .
It is logical that the solution to such problems is the creation of domestic well-equipped and modern production facilities, which at the same time, of course, must be profitable.
The analysis of technical processes at the enterprises of the industry under consideration, as well as a number of studies allows us to identify several key trends in the course of improving the profitability of production:
– introduction of modern processing technologies for the production of more expensive leather grades with subsequent import substitution in the domestic market;
– improving the quality of hides at the initial stage, before they go directly to the factory. A large number of defects on the leather significantly reduces its value and makes it unsuitable for the production of high-quality and elite grades of leather;
– use of additional equipment to reduce processing time at intermediate stages, thus speeding up the production process;
– increasing the assortment of products of various shapes and colors, which will constantly increase the number of customers;
– minimizing the environmental impact through the use of various cleaning and recycling systems. As a consequence, the choice of location for the plant will increase significantly, thus saving on logistics costs;
– improving water treatment systems for industrial waste. Fines for violating environmental safety standards can make production unprofitable. There is also an opportunity to reuse chemical reagents for processing hides. At the same time, the fight for the state of ecology has been given quite serious attention in recent years. In turn, non-environmental enterprises may find themselves under strong pressure from the state and the public .
Thus, it becomes possible to note that the domestic leather goods industry has undergone serious negative changes, in particular, the reduction of conditions for stable supply and demand for goods and services. However, new prerequisites for its development have emerged, primarily in the domestic market. The main ones can be considered to be the spread of widespread introduction of robotics and artificial intelligence into production and household chains, trends of digital presence of leather goods and haberdashery products and services on the Internet, increase in platforms for online training of employees and incentives for the educational process with further employment, and many others.
As a result, in the strategy for the development of light industry in the Russian Federation for the period until 2025, the leather and haberdashery industry occupy one of the 4 main places: «Creating in Russia the production of tanning materials for both clothing and footwear, as well as for the furniture and automotive industries, increasing the degree of processing and utilization of tannery waste, the organization of associated production of biocomponents and bio-additives» .
Achieving the development goals will require addressing the issues of increasing the production potential on the basis of technical re-equipment and modernization of production, it is necessary to introduce new technologies, as well as to reduce the technological and commodity dependence of industries on other countries. It is necessary to ensure economic efficiency of production, significant growth of labor productivity. It is necessary to strive to constantly improve the environmental safety of technological processes, resource conservation, and production culture. It is necessary to fight against shadow production and illegal import of footwear in order to increase the share of goods produced in Russia in the domestic market. It is necessary to establish inter-regional and intersectoral commercial ties with CIS countries, to improve integration and develop inter-territorial and intersectoral interaction of industrial entities and small businesses, to develop systems of reproduction of labor resources, training of workers, managers and managerial personnel capable of successfully conducting production process and business in a market economy. The state policy should provide sufficient funding for small and medium-sized businesses, as well as legislatively ensure the stable position of domestic producers in the domestic market, improve customs and credit policies, and stimulate the export of Russian footwear.
Russian tanneries aim to implement modernization, digitalization and the latest technical equipment. According to Federal State Statistics Service, these trends are supported by the state: investments for this industry amount to about 1.5 billion rubles . This factor is also interrelated with the increased competitiveness of Russian haberdashery products not only in the domestic market, but also in the foreign market.
Among the most successful prospects for the development of the leather and haberdashery industry in the Russian Federation are:
– transition to the latest technological base. Its main advantage should be a well-established process of low-waste production (or, if possible, zero-waste production).
– improvement of the processes of labor organization and management of the working staff at the enterprise. The main factor for development is the improvement of the educational process in the industry in question.
– the use of environmentally friendly leather production techniques (e.g. chrome-free tanning).
– expansion of the range of leather goods, development of domestic brands, etc.
At the moment, the leather goods industry in Russia is undergoing a number of technological changes that set a new vector of development. The high potential of this branch of light industry requires state support in the development of manufacturing production, creation of domestic technological and material base, as well as implementation of the strategy of import substitution of products. In its turn, the state in the realization of these prospects tends to occupy one of the main roles, as it systematically carries out stimulation of the development of the domestic raw material base by subsidizing the increase in the number of livestock and improving the quality of hides harvesting, as well as seeks to apply a flexible customs and tariff policy.
The competitiveness of Russian goods in the foreign market has increased. Currently, the Russian light industry is a highly competitive industry with a high share of small and medium-sized enterprises. There are more than 29 thousand enterprises and 49 thousand individual entrepreneurs in the industry .
The increase in demand for Russian products has caused additional pressure on production capacity. This has led many domestic enterprises to actively develop their production, which declined significantly during 2020. The Russian light industry accounts for 0.9% of GDP, which is 2.4% of industrial production or 3.6% of total manufacturing .
One of the positive examples in the development of the light industry is the leather industry, namely the production of leather for haberdashery and footwear. While the quality of Russian leather used to be questionable and production volumes were insufficient, over the last 10-15 years there have been positive changes. Russian leather is not inferior to generally recognized analogues and is now used not only for the production of clothing and footwear, but also for other industries — automotive, aviation, furniture.
Russian raw materials are used by many companies, such as those producing footwear. The Faraday company produces new types of special-purpose footwear, Bris-Bosfor is creating a new footwear production facility with a capacity of up to 12 million pairs per year. Some of the largest footwear production facilities are JSC «Ralf Ringer Footwear Factory» (Moscow), JSC «Egorievsk-Obuvvie» (Egorievsk), JSC «Unichel Footwear Factory» (Chelyabinsk), LLC «Pskov-Polymer» (Pskov), LLC «Lel Footwear Factory» (Kirov). All these productions buy leather from large tanneries, such as JSC «Russkaya Kozha», JSC «Verkhnevolzhskiy tannery», JSC «Khrom», LLC «Arsenal». Russian Leather» company has a rapid pace of development, it actively introduces the direction of production of environmentally safe leathers that have no domestic analogues.
As of today, the growth rate of the leather industry and reorientation towards raw material processing contributes to its further development. Therefore, the main goal laid down in the light industry development strategy is to increase the share of Russian goods in the domestic market.
Summarizing, it should be noted that despite the outlined positive trends, the development of the domestic light industry was complicated in 2020, mainly due to the introduction of quarantine restrictions and, as a consequence, the growth of unemployment. This affected the purchasing power of consumers seeking to save cash. Retail stores of shoes and clothes were closed for a long time, so online sales increased. Due to the foreign policy circumstances of the last two years, it is difficult to give accurate long-term economic forecasts, but the potential associated with the development of import substitution in the light industry is quite high. According to statements by the Ministry of Industry and Trade, for example, the production of footwear in Russia grew by 7.3% in January-June 2022 compared to the same period in 2021 .
Competition with other countries sets goals for Russia in the light industry, the achievement of which is necessary for the state to remain one of the main participants in the world market. For the sake of meeting the needs of buyers, its constituent industries must constantly develop and have different levels of production, differing in types of products, volumes of processed data, new materials, technologies, etc. In turn, the organization and modernization of modern tannery production is impossible without the introduction and use of modern technologies and equipment. Special attention should be paid to the following aspects: the impact of the enterprise on the environment, active expansion of the range of products, improving the quality of raw materials.
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