Italy's Conceria Virginia and the Chennai-based Forward Group have formed a joint venture -- Conceria Virginia Chennai -- making it the first ever foreign direct investment in the tanning sector in India.

Forward Group will hold 75 per cent equity in the firm, while Conceria Virginia will hold the rest.

The initial investment in the joint venture will be Rs 10 crore (Rs 100 million), said Yavar Dhala, Managing Director, Forward Group. Dhala is also the managing director of CVC.

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Around 90 per cent of the equipment for the tannery will be imported from Italy.

Ten-year old Conceria Virginia is a Euro 20-million Italian tannery promoted by Matteo Di Palma, who has 29 years of experience in leather industry. Conceria Virginia specialises in leathers for shoes and other leather goods.

The Forward Group of Companies is a 38-year-old manufacturer and exporter of finished leather, shoe uppers and shoes.

The company, which generated revenues of Rs 120 crore (Rs 1.20 billion) in 2003, expects its revenues to touch Rs 200 crore (Rs 2 billion) in another 18-20 months time.

To a question why the Italian firm chose India as the place for investment, Palma said, "India has a very active, vibrant and dynamic tanning industry. The technological power and manpower availability also attracted us. Then, of course, the feel good factor of working in India is there. We are convinced that India is the place to be in."

The 6-million sq ft per annum production facility at the newly built factory in Chennai will start operations from June 2004, Dhala said.

The factory in Chennai will become the first bovine tannery in India which provides Italian tanning technology and expertise. Italian technology is considered as the best in the world. Two Italian technologists will be at the Chennai plant supervising the operations.

The joint venture will not only have a tannery but also a 3000 sq ft leather show room, he said.

CVC targets Rs 60 crore (Rs 600 million) on an annualised basis by the end of the third year of manufacturing.

Ever since the manufacturing sector in Italy started declining due to high costs, Italian leather goods manufacturers have been looking elsewhere to outsource, said Laura Vieucci, marketing director, CVC.

"We are excited about coming to India. We first came to Chennai in 1996 as a part of a leather exhibition and found that India is a dynamic place as far as leather goods manufacturing is concerned. People over here were shocked to see Europeans selling leather and not buying. But we started sensing the feel good factor for the last four years," Laura said.

As the cost of manufacturing went up in Italy, a new market opened in Asia, particularly in India, Far East and also China.

"We are excited about this market. So, it is to cater to this market that we decided to invest in India. Now, we have become the first leather company to have a joint venture in another country to manufacture goods."

Why India and not China? Palma said: "I like India and Indians because you go for long term co-operation. Chinese people are more for spot business. We don't want to put our money in a place where people will say, thank you, and send you back. We have come here to stay and not go after a few years."

"This is going to be a permanent relationship. Moreover, we have to be where the big volumes are. We see a lot of opportunities and lots of customers here unlike the European or the American market. They are very small compared to the Indian market," Palma added.

Four years ago, Conceria Virginia met the Forward Group of companies and found the Chennai based company "very reliable."

Palma also admitted that the joint venture was possible only because of the "personal relationship" he developed with Yavar Dhala.

The joint venture became necessary for Forward Group because the customers of the company all over the world started clamouring for goods made of bovine leather, which is quite sophisticated.

Though India has raw materials like goat, buffalo, sheep and cow, it is goat stock that is used more and not cow stock.

So, it becomes essential for CVC to first import European wet blues or the semi finished leather from Italy. Palma has plans to use the locally available raw material and make it more sophisticated through advanced Italian technology.

They expect the use of locally available leather to happen in a year's time.

According to Dhala, not only Forward group but many other Indian shoe manufacturers will benefit from this joint venture as other companies can source leather from Conceria Virginia.