FREEWOOD INTERNATIONAL, a local manufacturer of men's leather shoes, says producers of such footwear are facing several challenges, including the rising cost of rawhide due to shortages and consumers' weak purchasing power.Surachai Alongkornchotikul, managing director of the company, said that for long-term survival, small and medium-sized enterprises like his would need to adapt to higher costs, improve quality, and create brand awareness.

Leather footwear is not a high-growth industry, he said, noting that at Freewood, which has served the market for 26 years, annual sales revenue stayed around Bt80 million to Bt90 million. However, the margin has gradually declined as it has been hit by higher costs, especially for rawhide.

He said there was a shortage of rawhide, leading some tanneries to shut down while others had to import hide from overseas, increasing the price by 12-15 per cent.

Rawhide accounts for 40 per cent of Freewood's operational costs, followed by wages.

Producers of leather shoes including Freewood have had to increase their prices to cover their costs and increase distribution channels.

Surachai believes leather shoes are similar to vehicles in that every time models change, the prices are adjusted, and consumers can afford the new prices.

He said that even though sales growth had been stable for many years, this year lower purchasing power was a big challenge for the company to achieve sales growth of 20 per cent.

In fact, sales revenue in the third quarter dropped by more than 20 per cent from the second quarter, indicating that last year's sales revenue will likely turn out to be better than this year.

The intense competition among local players, even though there are only four or five brands, has resulted in price wars, driving down profit margins.

Freewood does not consider wage costs to be a big problem as it pays its skilled staff Bt700-Bt900 per day.

The company is training its own staff apart from hiring subcontract companies as it has learned that having a lot of skilled employees helps ensure the quality of its products.

"For SMEs, quality control is an important factor. We don't want to be a large company because it is not easy to manage cost and quality. We learned that some big footwear companies had to shut down because they could not cope with a lot of the challenges in the shoe industry," he said.

But Surachai noted that SMEs that are original equipment manufacturers (OEMs) should consider developing their own brands to maintain growth in the long term.

"In the past, leather producers did not consider brand development, but today brands are important. We have developed the Freewood brand since 1987 along with being an OEM of leather shoes for the European market," he said.

The Freewood brand is well known among provincial customers as the company has begun selling its shoes at local department stores. The upcountry market generates 70-80 per cent of its annual sales.

The company is planning to promote its brand more in Bangkok over the next couple of years to expand its customer base. Bangkok shows good potential for Freewood as its targeted customers are white-collar workers with monthly incomes of up to Bt15,000.

Surachai said the company preferred focusing on the domestic market rather than exports even though its products are now sold in Myanmar and Laos, as customers in overseas market, even in neighbouring countries, can always shift to competing products with lower prices.

"The domestic market is a certain market," he explained.