ISA TanTec has a colourful history, but is now settled in the bustling city of Guangzhou in southern China. Founder Thomas Schneider will celebrate the fifteenth anniversary of the start of operations next year, but what makes him most proud of all is that some of the people who started working with him in 1995 are still with him today, and have helped him develop LITE, leather with a ‘Low Impact to Environment’.

Thomas Schneider is German but has spent almost his entire working life on the other side of the world. He started in the leather industry in 1981, taking the position of factory manager in a tannery in Australia as his first job. He remembers encountering opposition to his ideas from a workforce that was, on average, twice his age. He fought hard, but when, in 1985, a fellow former Reutlingen student invited him to go to Taiwan, he felt the time was right and made the move that changed his life. He met his wife, Kris, there and they moved to China at the end of the eighties, setting up the operation that eventually became ISA TanTec together.

At first, the only option was to set up a joint venture with a Chinese partner, which the Schneiders did in 1989. “The incident in Tiananmen Square occurred on June 4 1989,” he recalls, “and we started the joint venture, Leatherworks, on, I think, June 12. It was the first joint venture of any kind in any sector to go through after Tiananmen. We started with eight people, and three years later we were making 1.3 million square-feet of leather a month.”

This set-up stayed in place until, in 1993, Mr Schneider and his wife decided to go it alone. Setting up a wholly-owned foreign enterprise (WOFE) in those early days of the Chinese boom was practically unheard of. Many from outside believed it to be something beyond the permitted boundaries of the new, more open economic policies. “You were allowed,” Mr Schneider says, “but nobody did it. Around 80% of joint ventures go bust in five years, and I said to my wife that we ought to set up a WOFE instead, to do what we had to do—including dealing with landlords, the customs authorities, everybody—on our own. As she is from Taiwan, my wife was able to do all the China work, but it wasn’t easy. Fortunately, there was already a strong community of Taiwanese business people on the mainland and we were able to learn from them.”

The things they learned along the way—from people who had lost everything—included the harsh lesson that it was, at that time at least, perfectly feasible in China to build a new factory on a piece of land, having gone through all the bureaucracy you thought necessary, only to find once the building was complete that the land, in fact, did not belong to you and the newly built facility had to come down.

That same year, 1993, Mr Schneider’s new tannery opened for business in a small community called Zhao Qing, which is in the hills, three hours west by road from Guangzhou, and it ran for two years. “I moved in on a motorcycle with a bundle of crust leather on my back, and some chemicals,” Mr Schneider recalls. “When we moved out two years later, we filled 40 trailers.”

The move on this occasion was back to Guangzhou, where the company had continued to keep its main commercial office. Kris Schneider had come to the conclusion that having the production facility so remote from the commercial operation was “not a life”, her husband says, and drove this new change.

The move meant joining forces with a US company in a three-partner set-up. But since the bankruptcy of the US company in 2002, the company has been fully German-owned (50% owned by Mr Schneider and 50% by the Schweizer family, a renowned German tanning family). It devotes 80% of its activity to supplying the footwear market, specialising in leather for rugged outdoor, casual and work shoes made for and by brands such as Timberland, New Balance, Rockport, Hush Puppies, Keen and Deckers. It also makes leather for automotive applications and runs a cutting department on site for the supply  of cut-seat sets for stitching by customers. It is a tier-one supplier to Mazda in its own right, while providing leather for suppliers to other car brands, too, including top-level names such as Johnson Controls.

Team building

With intensive travel commitments, Thomas Schneider is far less hands-on today than he once was. Having a team in place that he trusts and believes in is all the reassurance he needs. Carl Flach arrived two years ago from Shanghai Richina as chief operating officer (COO), and technical director, Daniel Veit, who is originally from Brazil, has been on board since the Zhao Qing days. He arrived as a 19-year-old on the recommendation of a contact Mr Schneider had at Brazilian chemicals supplier Seta. He’s now ISA TanTec’s “chef de cuisine” the founder says.

“You have to let people cultivate their talent,” Mr Schneider says now. “And that means that you have to let them mess up some leather from time to time. You have to have a culture in which people are trusted. I think that what stops improvements much of the time is an unwillingness on the part of companies to allow people to make mistakes. If you don’t allow mistakes, you stop improvements. And the other secret is that we don’t treat customers as the biggest disturbance factor to the operation. Today the comany is a true United Nations with employees from most continents of the world.”

The global economic downturn has affected ISA TanTec’s 2009 order book and the company has had to reduce its workforce this year from 700 in January to 538 in August. Just before it made the cuts, it paid out bonuses for successful results it achieved in 2008. The company says it sees no sense in mixing the past with the present; the bonus was for positive past results. When orders began to slacken off in January, especially on the automotive side of the business, and numbers in the cutting department in particular looked to be too high, the company still wanted to give credit where it was due for the 2008 performance. But it laid off no management people. Mr Schneider insists: “You can’t start cutting off your arms and legs. Not one manager and not one supervisor left.”

LITE switch

One of the recent breakthroughs the company has made on the footwear side of the business is called LITE, which stands for leather with a ‘Low Impact to Environment’. The company has made its use of equipment, water, chemicals and energy as efficient as it can, meaning that it now feels able to offer footwear brands high-performance materials with a “drastically reduced” ecological footprint.

“I thought it was interesting that, two months ago, Wal-Mart said it was introducing a ‘sustainability index’, asking suppliers to highlight the environmental footprint of their products,” says Mr Schneider. “We’ve been doing that for two years. When I heard the Wal-Mart news I knew we were on the right track. It makes me happy to think we were two years ahead of Wal-Mart.”

His COO recalls that, in 2007, many customers expressed an interest in green products, Thomas Schneider asked the team why the entire focus had to be on green products? Why not focus on a green production system? This sparked the development of LITE going live in July of that year.

The idea of using less energy to produce leather is second nature, perhaps. Tom Schneider explains that his parents, who had been wealthy in east Germany before World War II, lost everything in the upheaval at the end of the conflict and fled to the west with nothing. After this experience they instilled in him a keen understanding of the value of resources, which today translates into a tannery with innovations such as motion-switched lighting.

LITE has enhanced a reputation Mr Schneider was already building up for environmentally sensitive production of leather. In 2006, he founded the Green Tanners of China—which, unfortunately, has since been renamed as Foreign Tanners of China—a lobby group affiliated to the China Leather Industries Association (CLIA) that aims to improve the overall environmental performance of the tanning sector in China. He’s also a director of China Tanners‘ Committee (a technical division of CLIA itself).

Carl Flach’s way of explaining this is to say that LITE lets footwear brands make their shoes greener at no surcharge (from the tannery). “It’s a good story for the consumer,” he says. “For us, it’s not only a good story but at the same time a method of increasing production efficiency and energy efficiency, of improving quality and making savings.”
Working with renowned German environmental consultant Jutta Knoedler, from the company ITG Gomaringen, ISA TanTec has worked out that the biggest saving potential is through energy efficient product systems. By using these, it is possible to reduce the CO2 emissions and at the same time save money. By measuring the number of kilowatt-hours it consumes to run each of its drums for a day, and how many sides it could process per day in each drum, the company was able to work out its energy consumption in tanning each side. It has also decreased its water consumption because, although water is cheap in this part of China, cleaning it after use in a tannery is not. The result of these steps is that now, compared to four years ago, ISA TanTec is using 47% less water and emitting 30% less carbon dioxide.

The tannery in Guangzhou has won silver certification from the Leather Working Group (LWG)—the forum initiated by footwear brands and their suppliers to improve environmental practice in the footwear leather manufacturing supply chain. Carl Flach believes it is only a matter of time before the facility achieves gold. He explains: “To consume 51.9 megajoules to produce one square-metre of finished leather from wet blue is a gold-level performance. We’ve got 33. I know we are the best in the LWG in that category. And the CLIA came up with guidelines in draft in 2007 stating that tanneries should consume 168 litres of water to produce the same amount of finished leather from wet blue, one square-metre. The LWG expects 88 litres for gold-standard tanneries. ISA TanTec consumes 49 litres. The whole exercise gives us a measurable carbon footprint for every leather product we produce. We can guarantee that our leathers are consuming the lowest amount of energy and water possible. We can, therefore, give customers a choice to use leather that consumes fewer resources.”

The price is right

The company says it feels the footwear side of the business, which came through the January cuts relatively unscathed, is where growth will come from in the years ahead. Its aim is to offer quality, high-performance leather, with the extra value that the LITE production system offers.

Positive responses include Timberland chief executive, Jeffrey Swartz, who has mentioned LITE in almost all recent interviews, including in The China Daily and on BBC World’s Hardtalk programme, Keen sending out information pages on the concept to help educate its workforce on what to tell customers about LITE, and Hush Puppies taking up the option of including a dedicated LITE hang-tag on a model of desert boots last year. The founders of active lifestyle sandal brand Reef, Fernando and Santi Aguerre, found information about LITE on their own while searching online for green leather and made their own approach to ISA TanTec as a result. 

COO Carl Flach explains that the tannery has identified that “adding more feminine products”—to its range of waterproof, classic, full-grain, wax anilines, smooth, tumbled, distressed effect leathers—is another possible path to growth. “We’re diversifying,” he says. “Traditionally, we’ve been producers of brown leather of between 1.6 and 2.2 millimetres in thickness for outdoor shoes and boots. We’re now looking also at thinner, more fashionable articles that we think will prove attractive in the women’s footwear market.”

Another change ISA TanTec is engineering is to become more involved with the footwear brands, rather than being content just to supply their outsource manufacturing partners, a set-up under which the brands often did not know the source of the leather. Mr Flach says his company is moving now to make sure the brands know when their shoes contain LITE leather, bringing about what he calls “a different level of communication” between the tannery and the footwear firms, especially as ISA TanTec has been able to establish dialogues about the leather with designers, engineers, the people with responsibility for restricted substance lists, as well as the purchasing team.

He feels strongly that the ISA TanTec tannery in Guangzhou (and the same will apply to the new tannery the company set up this year in Vietnam—see panel) has a role to play at all these levels. “The reason we are here is not because it’s cheap to produce leather here,” he says. “We are importing hides and chemicals from Europe and the Americas. Yes, labour is cheaper here, but tanning is not a labour-intensive industry. Footwear manufacturing is very labour-intensive. That’s why they are here and we have to be close to those who make the shoes, to be able to respond well to them. However, the big development that has happened here in the last three years is that we also need to be in with the brands. That way, they can change factories and we can survive. This has happened again and again.”

Mr Flach is less optimistic about growth on the automotive side of the business. “The irony is that ISA was one of the first tannery to produce automotive leather in China,” he says. “Now all the big players are here. They seem to me to be constantly trying to undercut one another, knowing that they won’t make any money. Automotive is tough. If a car company is your customer, you know your price will be reduced by 4% year on year, which means a 12% reduction over the life of a three-year contract. We understand automotive, we understand that it’s system, system, system, and that the system is not something you can just hang on your wall—it’s something you have to live. But we have to work on programmes that are profitable, and that means saying no to others.”

ISA TanTec’s involvement in automotive is ongoing, though. It will supply leather for the upholstery in the new generation Mazda3, which will come onto the market next year, and is involved also in the new model of the CX-9 sport utility vehicle (SUV) that the Japanese automotive brand will bring out in 2010. It has taken part in ideas workshops and other design initiatives in Japan, contributing suggestions that Mazda is keen on, such as how to offer consumers leather interiors that stay cool or resist water and stains and so on. It is also supplying material for the new Fiesta that Ford is bringing out in China for the domestic market.

Fair play

The local authorities in Guangzhou have held ISA TanTec up as something of a model in corporate social responsibility. The company is faithful to the principle of paying into a workers’ housing fund. Some commentators have suggested that as many as 80% of private companies in China neglect to pay into this fund, which aims to help workers buy a house, and that even public sector employers sometimes let their workers down in this regard.

There are three communication platforms set up in different parts of the site that the management team uses to keep workers up to speed with what is going on in the business, sharing news, celebrating the best performing teams in different areas, and encouraging employees to come forward with their own ideas for improvement (for which there are cash incentives). Examples of productive ideas to have come from this scheme already are the fitting of energy-saving lighting into inspection areas, and asking a supplier to add 1.5 metres to each roll of buffing paper, which increases the useable length by two metres per roll.

The city also gives companies a rating on their track-record in paying taxes—the tannery has an ‘A’ grade. The authorities also keep tabs on how much revenue companies contribute to the local area. “We’re not number-one,” says Mr Flach, “but we have a very good record on compliance. There are a lot of big companies in this area.

“We live in a local community and it is essential for our business to be in constant communication and adherence to this community. We want people in the neighbourhood to know about us in order to be an attractive workplace and an interesting company to relate to. The is a reason that people get working for this company for a long period.”

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