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close this bookSmall-Scale Manufacture of Footwear (ILO - WEP, 1982, 228 p.)
close this folderCHAPTER IV. FRAMEWORK FOR PROJECT EVALUATION
close this folderIII. Evaluation of technologies adopted by established footwear factories in developing countries
View the document(introduction...)
View the documentIII.1 Alternative technologies for type 1 footwear: A Ghanaian case study
View the documentIII.2 Comparison of alternative types of footwear at fixed levels of scale: Ethiopian case study
View the documentIII.3 Effects of scale on manufacturing technology for type 1 footwear: Ghanaian and Ethiopian case studies

III.2 Comparison of alternative types of footwear at fixed levels of scale: Ethiopian case study

When the shoe manufacturer faces no particular demand constraint in terms of type and quality of footwear, the selection of the most attractive type(s) of shoes to be marketed becomes as important as the selection of the most attractive combination of techniques. The comparison and appraisal of alternative combinations of techniques to manufacture a different type of footwear, can, in principle, be undertaken in the same way as indicated for the case of the type 1 men's cemented-on, leather-upper shoes. Once a least-cost technology for each type of footwear has been identified and selected, the attractiveness of manufacturing different products with a least-cost technology can be compared by calculating the overall profitability of alternative projects.

For five of the six types of footwear distinguished in this study, the major characteristics of the least-cost combinations of techniques to manufacture 1,200 pairs of shoes or sandals per day are summarised in Table IV.6. The data was obtained from a number of footwear projects located in Ethiopia and is based on 1972 prices. The type 3 shoe with stitched-on leather soles is not included because its characteristics do not differ substantially from the type 1 shoe with synthetic soles.

Details of the calculations for the different types of footwear can be found in McBain (1977). The results presented in Table IV.6 can only be partly related to the tabulations included in Chapters II and III, because the latter largely refer to that part of the cost that varies with the technology.1 As the choice between different types of footwear is necessarily based on a comparison of product profitability, variable and fixed costs are estimated separately in this case study.

1 See technical tables in Chapter II for type 1 footwear and technical tables in Chapter III for footwear types 2, 4, 5 and 6.

Table IV.6
Economic characteristics of producing 1,200 pairs of different footwear per day with a least-cost technology in Ethiopia (in thousand 1972 Ethiopian dollars)

Cost or benefit item

Stitched leather, cemented-on shoes (Type 1)

Stitched leather moulded-on shoe (Type 2)

Welded PVC moulded-on shoes (Type 4)

Stitched PVC cemented-on sandal (Type 5)

One-shot, moulded PVC sandals (Type 6)


Value

Ratio

Value

Ratio

Value

Ratio

Value

Ratio

Value

Ratio

1. Intermediate inputs

2,145

0.715

1,913

0.671

937

0.679

649

0.541

344

0.662

2. Wage and salaries

270

0.090

277

0.097

125

0.091

233

0.194

52

0.100

3. Depreciation

26

0.009

34

0.012

17

0.012

17

0.014

27

0.052

Production costs (1+2+3)

2,441

0.814

2,224

0.780

1,079

0.782

899

0.749

423

0.814

Net operating profit (4-1-2-3)

559

0.186

626

0.220

301

0.218

301

0.251

97

0.186

Value added (4-1)

855

0.285

937

0.329

443

0.321

551

0.459

176

0.338

4. Ex-factory sales

3,000

1.000

2,850

1.000

1,380

1.000

1,200

1.000

520

1.000

5. Average price per unit ($)

10


9.5


4.6


4


1.3


6. Fixed capital

660

0.220

842

0.295

423

0.307

417

0.348

295

0.567

7. Working capital

1,591

0.530

1,424

0.500

677

0.490

512

0.427

169

0.325

Total capital (6+7)

2,251

0.750

2,266

0.795

1,100

0.797

929

0.775

464

0.892

Net profit at 10% (4-1-2-3-10% of cap.)

334

0.111

400

0.140

191

0.138

208

0.173

51

0.098

Net oper. profit cap.


24.8


27.6


27.4


32.4


20.9

8. Staff and skilled production workers (no.)

86


93


29


71


22


9. Other production workers (no.)

81


77


12


52


6


Total No. employed (8+9)

167


170


41


123


28


Fixed capital/employee ($)

3,952


4,953


0,324


3,393


10,536


Source: Calculated from McBain (1977).

One of the most striking features observed from the figures in Table IV.6 is that the variation in labour requirements across different types of footwear is substantial ranging from 28 and 41 employees for synthetic footwear types 6 and 4 to 167 and 170 employees for leather footwear types 1 and 2. However, as labour and fixed capital requirements are, to some degree, proportional to output, variations in capital-intensity are considerably less marked as shown by the estimated fixed capital per employee. The highest capital-labour ratio estimated for type 6 footwear is approximately three times higher than that for type 5 footwear (the lowest capital-labour ratio). The range of fixed capital-labour ratios across products manufactured with a least-cost technology is to a large extent similar to that across technologies for the type 1 footwear (see Table IV.5). Interestingly, the skill composition of labour across products shows a tendency for capital-intensive products to be associated with a high relative share of skilled labour in total labour requirements .

The figures in Table IV.6 show that if effective demand for footwear would be such as to justify only one type of shoe or sandal to be marketed at a time (mutually exclusive products), the higher-priced varieties would be preferred because they generate the highest surplus to the economy (type 2 shoes and type 5 sandals show the highest net profit, the annual equivalent of the NPV). Compared with the synthetic and inexpensive type 4 shoes and the very cheap one-shot plastic sandals (type 6), the higher priced varieties also appear to be considerably more appropriate in terms of resource allocation. The economic and social implications of these findings will be further considered in the next chapter.