The TehChang tannery in northern Taiwan believes it has the knowledge and the ability to provide a bridge between leather production in Asia and leather consumption in North America and Europe. It is also positioning itself to be an important supplier to consumer brands that want to focus on the domestic Chinese market.

TehChang is a family business, run by a family that has been involved in producing leather in Taiwan for 50 years and counting. It’s in the hands of the third generation, with four cousins leading the business now, and the fourth generation, in the form of Jonathan Pai, already on board, in this case in the accounts department.

The grandfather of the current management team got things going in the town of Changhua in central Taiwan. In 1979, four of his seven sons (Ching-Hui, De-Wang, Xi-Chian and Wan-Lai Pai) formed TehChang and moved operations north to Taoyuan, close to Taipei International Airport, taking their time before starting production on May 1, 1982.

Focusing entirely on side leather, with no splits, TehChang, produces 20 million square-feet a year, almost all of it going into footwear; its three top customers are Timberland, Wolverine World Wide and Clarks. The company is still 100% privately owned, with 17% of the equity now in the hands of the workforce.

This tannery was, in 1993, one of the first in Asia to take up full membership of UK-based leather research and training organisations BLC Leather Technology Centre and SATRA. It won accreditation to ISO 9001 in 2002 and to ISO 14001 five years later. Two audits from the Leather Working Group, in 2008 and 2010, have given it a silver rating.

TehChang has 1,400 hides coming into its beamhouse every day, from which the company makes 70,000 square-feet of chrome-tanned leather for shoe uppers. In the current climate, this volume of hides has become an expensive resource. “High hide prices are here to stay, in my opinion,” says one of the cousins, Ming Pai, who acts as general manager. “We’ve been paying $90, cost and freight, for raw hides and around $105 for wet blue. These prices are here to stay, according to our raw materials manager. And, meanwhile, hide quality is going down. It seems to us that over the last three years, farmers have been taking less care of their cattle.”

He says his customers in the footwear industry understand that the price of leather has to go up, and that TehChang has done everything possible to manage the situation, including experimenting with yak and camel hides. “The yak is a wild, wild animal,” Mr Pai says. “It’s hard to control the quality, but some customers like it. It will never replace bovine, but we can secure enough raw material to make between 50,000 and 100,000 square-feet per month and it’s good to have an alternative.”

For another of the cousins, Richard Pai, the senior member of the TehChang management team (he joined in 1981) and company president, the experience of learning the basics of the business in the UK at the college that is now part of the University of Northampton has stood his company in good stead. “We left enough space to manage environmental issues,” he says. “Thirty years ago, there were 30 tanneries in this area; now TehChang is the only one left.”

Delivery performance

The Pai family pays great credit for its survival and ongoing success to a gentleman called Ralph Amabile, an industry veteran who has worked in the leather business for 61 years. He started his leather career with Colonial Tanning in New England, and spent a short time with S.B Foot before spending 27 years with Prime Tanning, working his way up to vice-president of sales. Since retiring from Prime in 1998, Mr Amabile has represented TehChang, acting as the company’s international director.

The admiration is clearly mutual. He says: “If the Pai family says it will do something, it does it. That’s why I keep coming back [to Taiwan]. There is no way you can run a business on a global basis unless you are on top of it day and night. This family lives and breathes the leather business. This isn’t a rocket-science business. It’s about doing the best you can and living up to that. A lot of companies don’t follow up and do what they promise. The best do what they promise, don’t promise what they can’t deliver, and don’t do smoke and mirrors.”

Mr Amabile says he could hand over a long list of companies from North America that are “comfortable with this family”. Delivery performance has been “as good as anybody’s in the leather business”, he says, adding: “I know companies that haven’t been able to achieve this level of delivery performance after 25 years of trying. You will not find anybody more co-operative and understanding, of North American customers in particular. The dedication of the Pai family, and their exposure to western thinking and education have allowed them to make this transition easily.”

Trends analysis

“To have the leathers early, we have to start the base development of our products (retanning, embossing, patterns and so on) at least six months in advance of when the customer is going to see them,” Mr Thams explains. “We have to get the building blocks in place. For example, we have to have leathers for fall 2012 ready for April 2011, and we are already thinking about spring 2013. Some examples of the ideas we have had to work on include the trend towards firmer leathers, and of oily feels becoming drier. We have to combine all of this into a product mix that will interest our customers and suit their needs. That’s important because Italian tanners, for example, have consistently presented lots of great fashion leathers, but our customers need things like colour-fastness and durability too. There are systems around that make beautiful leather, but maybe not leather you can sell.”

There are other considerations. He believes forward-thinking tanneries have an important role to play in helping customers such as big footwear brands present themselves as companies that are causing less pollution, using less water and taking environmental considerations into account at every turn. “It means we are constantly looking for new chemicals that can offer lower COD (chemical oxygen demand, which measures pollution in water), for example,” Mr Thams continues. 

He makes the point that leather, owing to the industry’s size, will always struggle to command large amounts of research and development budget. Even research organisations across the leather sector are becoming smaller. This means developments from suppliers, of chemicals and machinery, have mostly been evolutionary rather than revolutionary in his view. Some machinery companies in particular have been focusing all their efforts on survival in recent years and, therefore, asking them to put millions into research and development would be unfair.

According to Ming Pai, some chemical suppliers are actively helping his company at the moment to save energy and reduce its water consumption. Chrome-free leather is another popular topic and, specifically on this, an Italian leather chemicals company that he prefers not to name is working to help TehChang meet customer needs. “Timberland and other customers are asking us about this,” he explains. “Manufacturing methods, transportation, distribution, where the material comes from and how it was made, and what will happen to it at the end of the finished product’s life are all questions that are important to consumers, and Timberland wants to include the information in the way it presents its products.”

If money were no object, the TehChang executives are in agreement that suppliers’ efforts to innovate should focus on the beamhouse and pollution removal. “An automated beamhouse with zero waste,” says Ming Pai. “That would be good.” Recognising tanneries’ own role in pushing innovation, he goes on to say that TehChang has carried out joint presentations with some suppliers to consumer brands, which have helped identify ideas that they can work on together. The example he gives is lighter weight leathers. “The density of our material is the key here,” he explains. “Softness is one thing, but what consumers want is lighter shoes.”

Use of leather among customers

It is clear to observers that, while most high-end footwear companies are maintaining their commitment to leather, others, including some of the biggest shoe brands in the world, are increasing the proportion of synthetic alternatives in their material mix. Cost, look, fashion and branding come considerably higher up their hierarchy of needs than comfort, durability, natural breathability and flexibility, all of which leather can offer much more readily.

“It’s certainly the case that some brands feel they can no longer afford real leather and are using polyurethane (PU) instead,” Ming Pai says, naming a very famous retail brand in North America. He mentions a second customer, a brand that is famous for its women’s shoes. He says: “The only type of leather they want to use is nubuck; everything else is PU. We started seeing this change in 2010, clearly because of rising hide prices since 2009. Shoe brands say they can’t afford that. This particular brand is only continuing to use nubuck because it can’t find a synthetic material that replicates the look and feel. We’ve never seen anything like this before, and it is certainly linked to the hide price.”
He goes on to say that a move—which Ralph Amabile, with his contacts, helped TehChang engineer at the end of last century—into outdoor and performance footwear is standing his company in good stead because many of these footwear brands are still using leather extensively. Yes, there is resistance to increases in hide-prices even among this band of faithful footwear companies, but Ming Pai points out that end-consumers know life in 2011 is more expensive. If they find themselves paying more for bread, milk and everything in their supermarket baskets, it will be no surprise to them if products made from leather have gone up in price too.

Ideas that the TehChang tannery has for growth include doing more business with European footwear brands, and an interesting-looking side-step into leather covers for electronic devices. A first project, for electronic book reader device the Amazon Kindle, will swallow up around five million square-feet of TehChang leather this year.

On promoting leather

The team at TehChang believes in efforts that have sprung up across the sector in recent years to promote leather, to footwear manufacturers, their end-consumers and others. But the common belief in the Taiwanese tannery’s boardroom is that these efforts will take money and co-operation across the industry, plus co-operation with brands that are serious about leather. “They’re the ones that are in the public eye,” Dennis Thams comments. “With their support and their drive, who knows what might be possible. There have been so many campaigns in the past, such as brands in my native Australia agreeing to put special swing-tags on leather shoes in the 1980s, as long as the leather industry paid for the tags. For a small industry we’ve spent a lot of money on these ideas, without achieving much mileage. Today, I’d have a high-profile celebrity to act as an ambassador for leather, the way tennis star Roger Federer acts as an ambassador for high-end watch brand Rolex.”

His other suggestion is to focus a campaign on the domestic market in China, where consumers, in his opinion, understand leather and perceive it as a luxury material. Because of this appreciation, and because of the numbers of consumers involved in China, a campaign there could have a big impact, he thinks.

A suggestion from Ralph Amabile is that forward-thinking tanners such as TehChang should prepare a presentation on the beauty and benefits of leather and deliver it during the tours they already make of the major footwear brands. “Bring these ideas to the attention of people at the highest level in these customer organisations,” he says.

Relationship with China

Under the brand name Joinland, the Pai family also runs two tanneries in China, in the southern cities of Dongguan and Zhuhai. It set up the Dongguan site as long ago as 1995, but only for finishing. It has no beamhouse there and is buying in crust from TehChang, from local suppliers and on the open market. Since 2008, the Dongguan tannery has been producing finished leather exclusively for the domestic Chinese market. If it’s true that domestic footwear consumption is set to double (this message comes from the China Leather Industry Association), the local demand for leather will increase dramatically.

The Zhuhai tannery came into operation in 2003. Here things start from wet blue, but Ming Pai makes it clear that the company has a permit in place to add a beamhouse when the moment seems right. Finished leather from this facility is for the export market. Life is complicated for tanners in China at the moment. Mr Pai explains that tanneries focused on exports are permitted under current regulations to import wet blue, raw hide and chemicals without paying import duty or value added tax. If you sell your leather on the domestic market, importing those materials does incur tax and duty.
“My feeling is that, in five years’ time, China will have just one system and we’ll be able to run an export and a domestic business from the same facility,” Ming Pai explains. “But the domestic market in China is becoming very interesting and  we cannot wait for five years before addressing it, so that’s what we are doing. We have an advantage. We speak the same language in Taiwan, and we have experience. We are innovative and we have good financial resources, so issues such as the strict environmental requirements that the Chinese government has begun to impose on tanneries are good news for us. Yes, we have to watch the payment terms when dealing with footwear manufacturers down there, but it’s important to point out that the Chinese are very entrepreneurial and our customers are keen to develop the market with us.”

He and his cousins are confident of excellent opportunities emerging for the TehChang tannery from across the Taiwan Strait in the near future. Their information is that tanneries processing fewer than 300,000 hides a year may be forced to shut their operations on the mainland, the idea being that they will be too small to make the necessary investment to meet the environmental demands the government in Beijing is making, and will continue to make, of the leather industry. Smaller operators will be able to continue if they form clusters and have access to an adequate common effluent treatment plant. 

This demand from the Chinese government has still to be confirmed, but a main point is that the regulations seem to change quickly in China and the rules Beijing imposes can make an enormous difference to leather production. TehChang operates to high standards of its own, but it is immune to these changes. This is not a new thing. A regulation called Article 17 came into force in 2007, prohibiting the export of wet blue and crust from Chinese tanneries. Leather producers were given only three or four months to react. “This is making our position stronger,” Ming Pai says. “We have an operation here in Taiwan that will not be affected by these sudden changes imposed by the Chinese government.”

Bilateral trade between the two has a value of $110 billion at the moment and an Economic Cooperation Framework Agreement that they signed in June 2010 should make it easier to grow this total. One of the consequences is that leather trading across the Taiwan Strait is duty free.

Care for tannery workers

Three meals a day are available on the premises, with the company subsidising the price workers pay. Breakfast costs about 50 US cents, but workers opting to eat their first meal of the day at the tannery pay just 25 cents. For lunch and dinner, workers pay around 75 cents, with the company subsidising more than half the real cost.

The workforce includes a number of employees from Thailand, who have the option to live in a dormitory that TehChang has set up on the site. This facility includes air conditioning, laundry facilities, television lounges and kitchens. “Air conditioning is unusual in a workers’ dormitory,” Ming Pai says. “But it gets very hot here in July and August and we want to make sure our workers have a good rest after their shift.” The company carries out two types of health check on employees each year, paying for medical professionals to come to the tannery for the exercise.
On the first working day of most calendar months, the whole company gathers for a meeting. Any worker with a birthday in that month receives a voucher to buy something from a local store, and their colleagues sing ‘Happy Birthday’ to them. Any newcomers receive a formal welcome at the same monthly meeting.

There is paid overtime for the workers when production levels demand it, plus a well ordered production bonus scheme. Another benefit is a scholarship programme for workers to complete adult learning courses in their free time, and a separate educational assistance scheme for the children of employees who are performing well academically. The entire workforce receives gift certificates at the time of major festivals, and a party for all employees and their families marks the Lunar New Year.

Once a year, TehChang organises company trips, paying the way for each employee plus one family member. Further friends and family can come along too if they pay for themselves. There have been plenty of trips to tourist attractions in Taiwan, but plans are in place to broaden things out in 2011, with the Tokyo Disney Resort and the holiday island of Bali as possible destinations.

Back onsite, there are tai chi classes and courses in leathercraft. TehChang employees have also been given the opportunity to attend outside courses run by Dale Carnegie Training (focusing on interpersonal relationships, stress management and fast-changing workplace conditions), and by Brian Tracy (for entrepreneurship and business success). Company communications are interactive, with the workforce encouraged to submit articles, drawings and ideas for in-house publications.

Encouraging good communication and participation is something the tannery has extended into its links to the local community. It has supported competitions among local high school students to promote ideas for saving energy in school and in their homes. Schools often ask local businesses to help with meal programmes, library projects (buildings and books), sports events and musical activities. A member of the TehChang team, Jennifer Hsu, co-ordinates the tannery’s contact with local schools. She says this work is richly rewarding; when she goes to the schools, she causes a degree of excitement because the pupils associate her with good news. Another of her areas of responsibility, health and safety, has won her and TehChang recognition from the Taiwanese government and she is now helping other manufacturing companies in Taoyuan to improve in fields such as accident prevention, and fire and evacuation procedures.

Conclusion

Ming Pai confirms that he and his cousins consider TehChang to be different. “We are a Taiwanese tannery,” he says, “with more than just a traditional Chinese management team. We have studied in the United Kingdom and in Canada. We feel we can offer the best of Asian and western mentalities.”

He points out that Taiwanese footwear companies—including Pou Chen Corporation and Stella International—control between 30% and 40% of the global shoe industry, and that the TehChang tannery has good relationships with them. “Sometimes, western tanneries can come over as being a bit distant,” Ming Pai says, “with an attitude that because they come from the west, the footwear manufacturers should listen to them. Instead, it should be a partnership. We are organised, systematic (my background is in engineering), we produce good quality and we are competitive. We can operate without being affected by decisions made by the Chinese government. So we are in the Chinese market, but outside it too.”

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