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INDIVIDUAL ASSIGNMET

RESEARCH METHOD
LECTURER : PROF ROMLI

THESIS PROPOSAL :
STRATEGY FOR GREEN PRODUCTIVITY PERFORMANCE IMPROVEMENT
OF INDONESIAN LEATHER INDUSTRY
(CASE STUDY : LEATHER SMEs IN GARUT, WEST JAVA)

DWI NINGSIH / F351137071

GRADUATE PROGRAM
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AGROINDUSTRIAL TECHNOLOGY DEPARTMENT


AGRICULTURAL ENGINEERING AND TECHNOLOGY FACULTY
BOGOR AGRICULTURAL UNIVERSITY
2014
CONTENTS
CONTENTS
LIST OF TABLES
LIST OF FIGURES
I. INTRODUCTION
I.1. BACKGROUND
I.2. RESEARCH QUESTIONS
1.3. KEY OBJECTIVES
I.4. SCOPE OF THE RESEARCH
I.5. RESEARCH BENEFITS
I.6. RESEARCH OUTCOME
II. LITERATURE REVIEW
II.1. GREEN PRODUCTIVITY
II.2. GP BENEFITS
II.3. INDONESIAN LEATHER INDUSTRY AND THE ENVIRONMENT
II.4. PROFILE OF LEATHER INDUSTRY IN GARUT, WEST JAVA
III. METHODOLOGY
III.1. RESEARCH DESIGN
III.2. TYPE OF DATA RESOURCES
III.3. DATA COLLECTION
III.4. DATA ANALYSIS
III.4.1. Green Productivity Index (GPI)
III.4.2. Green Productivity Portfolio
III.4.3. SWOT Analysis and Strategy Formulation

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LIST OF TABLES
Table 1. Green Productivity Benefits

Table 2. List of Small and Medium Industry in Garut, West Java 2011

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Table 3. List of Observation Location

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Table 4. List of Experts

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LIST OF FIGURES
Figure 1. Green Productivity Concept

Figure 2. Waste Generation in Leather Tanning Process

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Figure 3. Research Design

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Figure 2. GP Portfolio

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CHAPTER I
INTRODUCTION

I.1. BACKGROUND
Leather tanning industry is one of the important export sector in Indonesian
industry that contributes 2.1% to Indonesian GDP. In 2012, export of leather reached 3.5
billion US Dollars and most of them were exported to USA, Germany, England,
Belgium, and Italy. On other hand, leather industry has been categorized as one of the
highly polluting industries. Therefore, one of the big problem which is caused by leather
tanning industry in Indonesia is its impact to the environment. Leather tanning industry
produce hazardous waste due to its chemical used and many water resources needed in
the process. Leather products are manufactured using various processes and chemicals
which may show variations depending on the desired the leather characteristics
(Ozgunay et al., 2007). Leather industry pollutes through generation of huge amount of
liquid and solid wastes, also emits obnoxious smell because of degradation of proteinous
material of skin and generation of gases such as NH 3, H2S, and CO2. Furthermore, the
tannery effluents are characterized by high contents of dissolved, suspended organic, and
inorganic solids rising oxygen demand and potentially toxic metal salts and chromium
metal ion.
Based on Presidential Decree No. 28 Year 2008 on National Industrial Policy,
industrial policy is directed to develop the industry become green manufacturing. Green
manufacturing is developed to address environmental pollution as well as green barrier to
trade from the customers especially in the European Union countries require
environmentally friendly leather products. According to the Asian Productivity
Organization (APO), with the development of global green trade, many business have
adopted green procurement practices that are gradually becoming non-tariff trade
barriers. Dandira (2013) stated that the company faces the green pressures of having to
use new methods of manufacturing which environmental friendly for the company to
remain competitive on the market and also to be a world class manufacturing
organization. Furthermore, Iaconi et al. (2002) described that companies considering
environment factor into the design stage of the product will be well placed to benefit from
the marketing advantages of any future eco-labelling schemes. Green manufacturing is
generically defined as elimination of waste by re-defining the existing production process
or system (Kumar, 2013).
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Nowadays, many companies manage their waste based on end of pipe treatment.
But, environmental protection through pollution prevention and the meeting of
environmental standards by waste treatment of the effluents in the various industries have
not worked in many countries (Kwong, 2002). In developing countries, including
Indonesia, environmental regulation is not strictly enforced. Environment protection is
seen by industries as only an added cost, which reduces competitiveness and profits of the
enterprises that strictly follow such environmental regulations. Therefore, Green
Productivity (GP) is introduced to be the key elements of sustainable development which
consider about environmental protection without sacrifice economic development.
Green productivity is still relatively new concept in Indonesian leather industry,
especially to the SMEs. Findiastuti (2012) described that green productivity is more
applicable in micro level performance measurements for its simple application and
adjustable. It means that it can be applicable in leather small medium enterprises (SMEs)
in Indonesia. APO stated that SMEs are important to the Asian economies, as more than
90 percent of all enterprises in Asia fall into this category. SMEs employ over half of the
workforce, contribute nearly half of the Gross Domestic Product (GDP) and produce
approximately 35 percent of the exports in many countries. According to Indonesia
Tanner Association (APKI), 70-75% of Indonesian leather industries are in the form of
SMEs which are located in several areas throughout Java including Jakarta, West Java
(Garut), East Java (Magetan), Central Java, and Yogyakarta. In contrast with big industry
which provide with good equipment and appropriate technology, SMEs have several main
problems namely lack of access to new technology, lack of skills, lack of capital to invest,
low profit margins, small and variable scales of operation and low productivity.
Therefore, to manage their pollution problem effectively SMEs will only consider using
an approach that carries a win-win formula. The strategy to address the problem should
be a two-pronged approach that not only enhances productivity, but also leads to better
environmeantal performance through green productivity appproach.
Kim (2003) stated that GP is a strategy and need an indicator that can be measured
quantitatively to be able to see the success of the strategy using GP index. This index can
be used to estimate GP performance of a product system or process. Besides GP index,
there are GP portfolio that can clearly describe current position of ratio between
environmental impacts and productivities. Furthermore, it make easier to see the strengths
and weaknesses of a particular product or process. GP portfolio can be applied to look for
a way to improve the GP performance of existing condition.
Subsequently, there is very limited empirical research that focuses on the green
productivity practices in leather industry especially in Indonesia. Therefore, this study is
conducted in order to examine what kind of practices that are applied in Indonesian
leather industry, especially for SMEs to control its environmental effect and also
formulate strategy to improve GP performance of Indonesian leather SMEs. For the initial
step to address pollution problem in the leather SMEs in Indonesia, it is necessary to
analyze to what extent the existing condition of the Indonesian leather industry and
measure green productivity performance through GP index and GP portfolio. The next

step is to formulate strategies needed to improve the green productivity performance of


Indonesian leather industries, especially for Indonesian leather SMEs.

I.2. RESEARCH QUESTIONS


RQ.1. To what extent Indonesian leather SMEs aware about sustainable development?
RQ.2. What is the factors that caused the environmental problem of indonesian leather
industry?
RQ.3. What kind of practices they undertake to solve the problem? Is it effective and
efficient to solve the problem?
RQ.4. In which part of the Indonesian leather SMEs that can be improved to achieve
better green productivity performance?
RQ.5. What strategy that can be done to improve productivity performance of Indonesian
leather SMEs?
I.3. KEY OBJECTIVES
1. To analyze existing condition of Indonesian leather SMEs related to environmental
protection as well as productivity improvement practices
2. Measuring green productivity performance of Indonesian leather SMEs
3. To analyze in which part of the existing condition of Indonesian leather SMEs that
can be improved by green productivity approach
4. Formulate strategies to improve green productivity performance of Indonesian leather
SMEs

I.4. SCOPE OF THE RESEARCH


This research is conducted in leathers SMEs in Garut, West Java. Leathers SMEs in
Garut is selected due to Garut is one of the biggest centre for leather tanning industry
that is recognized have a problem regarding impact of their process to the environment.
Therefore, analysing on the existing condition especially on productivity improvement
and environmental protection practices will give insight to formulate new strategy to
improve GP performance of Indonesian leather SMEs.

I.5. RESEARCH BENEFITS


The benefits of this research are :
1. The innovative strategy to improve green productivity performance of the Indonesian
leather SMEs for more sustainable, effective and efficient industry

2. Appropriate green productivity concept design to be applied in Indonesian leather


SMEs for better green productivity performance
I.6. RESEARCH OUTCOME
Outcome of this study is formulation of innovative strategy to improve green productivity
performance of the leathers SME in Indonesia

CHAPTER II
LITERATURE REVIEW

II.1.

GREEN PRODUCTIVITY
Green productivity was introduced by The Asian Productivity Organization
(APO) in 1996. Green productivity (GP) is a strategy for enhancing productivity and
environmental performance for overall socio-economic development. It is the
application of appropriate productivity and environmental management tools,
techniques and technologies to reduce the environmental impact of an organizations
activities, goods and services. Green productivity is a concept that not only considers
about environmental protection but also economic performance of the industry. It
focuses on three aspects namely productivity improvement, environmental protection
and sustainability.
According to APO, productivity is how efficient and effective we use
resources as input to produce products or services needed by society. Being green in
our productivity means to be productive with minimizing the environmental impact.
The central element of the GP is the examination and re-evaluation of production
processes to highlight ways to improve productivity, while reducing their
environmental impact. Furthermore green productivity is at the heart of the concept of
sustainable development (Miyai, 1997). Based on Hwa (2001), the concept of GP
shows that for any development strategy to be sustainable, it needs to have a focus on
environment, quality and profitability, which form the triple focus of GP. Logamuthu
(2010) emphasized that GP is driven by forces both external and internal to the
organization. External forces namely pressure from regulations, national and
international, demands from various stakeholders such as consumers and suppliers.
Logaa (2013) stressed that GP can increase product quality, reduce scrap and rework
costs, reduce waste and pollution as well as reduce risk.
Green productivity concept is more acceptable for the industries because it can
enhancing productivity and performance simultaneously. Therefore, companies can
involved in environmental protection without sacrificing their economic performance
through efficiently resource utilization and pollution prevention.

Figure 1. Green Productivity Concept


Essentially, the implementation of green productivity is to achieve higher
productivity and at the same time provide sustainable development. In addition,
sustainable development is development that meets the needs of the present
generation without compromising the ability of future generations to meet their own
needs. This includes the use of services and products which meet our basic needs and
improve the quality of life. The entire life cycle of these products and services must
be based on minimizing the use of natural resources and toxic substances that result in
emissions.
II.2.

GREEN PRODUCTIVITY BENEFITS


According to APO, by implementing green productivity will give short term as well
as long-term benefits to several stakeholders can be seen in the table 1 below :
Table 1. Green Productivity Benefits
No
1

Stakeholders
Enterprises

Benefits
Reduction of waste through efficient resource utilization
Lower operational and environmental compliance costs
Reduction or elimination of long-term liabilities and
clean-up costs
Increase in productivity
Compliance with government regulations
Better public image
Increase in competitive advantage
Increase in market share and profitability
Greater workers participation
Potential increase in employees share of value-added
Improvement in health and safety in the workplace
Better quality of work life

Employees

Consumers

High quality products and services


Reasonable pricing
On time delivery

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From previous research on green productivity, many industry get the benefits
from the green productivity implementation. For instance Singgih ML et al., 2010
find that by applying green productivity approach can increase around 3% and
generate cost savings phenol purchases. While, Gandhi NMD et al., 2006 find that
green productivity implementation in foundry manufacturing can improve GPI index
up to 0.019 for the end collar castings. In addition, he stated that GPI can be used as
an actinable feedback for leadership to make effective decisions.
In 2012, Sittichinnawing A and Peerapattana P that studied cayenne pepper
production in Thailand find that GPI results can be used for the baseline indicator of
process improvement to gain higher yield without compromising the environment.
While Logaa SMJ and Zailani S, 2013 find that most of their respondents agree that
GP can increase product quality, reduce scrap and rework costs, reduce waste and
pollution and reduce risk. But on the other hand the respondents do not agree that GP
can reduce manufacturing cycle time, reduce unit manufacturing cost, reduce
absenteeism, and increase worker participation and increase healthier environments.
Subsequently, in the rubber industry in Indonesia study using green
productivity approach have been conducted in 2012 by Darmawan MA et al., and he
find that by the implementation of alternative strategies based on GP approach can
increased green productivity to 0.690. On the other hand study about green
productivity approach never been done before, especially in the field of leather
industry in Indonesia. Therefore this study is conducted to gain new insight as well as
fulfill the gap of knowledge in the field of green productivity in leather industry
especially for SMEs in Indonesia.
II.3.

INDONESIAN LEATHER INDUSTRY AND ENVIRONMENT


Ministry of Industry stated industrial sector has become a major source of
economic growth that is equal to 1.6 percent in 2011. The growth of industry 6.8
percent was surpassing the target stated in Strategic Plan of Ministry of Industry in
2010-2014 of which was 6.1 percent. One of the sectors that surpassed the target is
textile, leather goods and footwear industry that grew 7.5% (target 3.4%). The other
sectors that also surpassed the target are food, beverages and tobacco industry, cement
and non metallic mineral industry, as well as base metal, iron and steel industry.
Furthermore, in 2010-2014 there are six industry groups that have good opportunities
to be developed are:
1. Labor Intensive Industries
2. Small and Medium Industries
3. Capital Goods Industries
4. Natural Resource-Based Industry
5. High Growth Industry
6. Special Priority Industries

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According to APKI (Asosiasi Penyamak Kulit Indonesia), 70-75% of


Indonesian leather industries are in the form of SMEs which are located in several
areas throughout Java including Jakarta, West Java (Garut), East Java (Magetan),
Central Java, and Yogyakarta. Leather SMEs become one of the focus of the
government due to its prospect in the contribution in Indonesian economic growth. On
the other hand, most of the leather SMEs in Indonesia have a problem in the
environmental performance that can be a barrier in the global market competition.
Leather industry produce hazardous waste due to its chemicals and water used in the
process. Globally, leather industry is divided into two big part namely leather
manufacturing and leathing tanning processing. From both part, leather tanning
industry contribute big effect to the environment due to its hazardous waste. Leather
tanning process generate waste which cause pollution in each step of the process
which can be seen in the figure 2.
According to Kanagaraj (2006) approximately 6.5 million tons of wet salted
hides and skins are processed worldwide annually and about 3.5 million tons of
various chemicals are used for leather processing. Based on Ramasami (2001) and
Ludvik (1996), a considerable part of raw materials needed in process is discharged
into the effluent. At an average consumption of 45-50 m 3 of the waste liquor and 800
kg of solid wastes per ton of raw hide are discharged by leather industry. The
composition of the wastes generated in tanneries worldwide are : COD, 1470; BOD,
619; suspended solids, 920; chromium, 30; sulphur, 60; and solid wastes (trimmings,
fleshing, shaving and buffing dust), 3000 thousand tons (Ramasami, 1999).
Subsequently, Kanagaraj (2006) stated that leather industry in developing countries is
facing a lot of solid wastes problem and many tanneries closed for not meeting biochemical oxygen demand (BOD) and total dissolved solids (TDS) norms.
In addition, there are three categories of tannery industry pollutant namely
waste solid, liquid and gaseous that are emitted in the form of waste water, solid
wastes as well as air emissions. (Hunt, 2008). Waste water is a serious threat to the
environment (Chandak, 1999). Waste water from this process can contain strong
alkali, bio-wastes and high concentrations of heavy metals, such as chromium. If not
treated properly, this poses a significant risk to the environment and human health.
One of the big problem of tanning industry waste is the chromium content which is
highly toxic and carsinogenic to human beings, animals, plants and the general
environment (soil and water sediment). Based on the data from Blacksmith Institute,
chromium pollution from tanning industry became one of 10 toxic pollution problem
in the world since 2010-2013. Furthermore, most of the solution which is proposed to
manage the tanning industry waste still based on end pipe treatment which is less
effective to reduce the effect of the waste to the environment.

Figure 2. Waste Generation in Leather Tanning Process

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II.4.

Source : Garg Rajiv, 2000


PROFILE OF LEATHER INDUSTRY IN GARUT, WEST JAVA

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Centre of leather tanning industry in Garut, West Java is located in


Sukaregang. Area used for the leather tanning centre is around 79.75 Ha. In Garut,
West Java, location of leather tanning industry are spread but tend to be close to the
river namely Ciwalen and Cigulampeng due to leather tanning process need a lot of
water resources. Leather industry in Sukaregang consist of small and medium
industry. Medium industry are identified with the industry that have employee around
20-100 while small industry has 2-5 employees. For detail information about number
of small and medium industry in Garut, West Java can be seen in the table 2 below:
Table 2. List of Small and Medium Industry in Garut, West Java (2011)
Location
Village
District
1
Kota Wetan
Garut city
2
Suci
Karangpawitan
TOTAL
No

Business
unit
290

Employee
(persons)
1.285

Investment value
(Rp. 000)
13.391.040

40

210

1.847.040

330

1.495

15.238.080

Production capacity
Amount Dimension
114.463 Sq. Feet
Sq. Feet
122.708

Production
value
44.216.300

237.171

50.315.100

6.098.800

Source : Centre of industrial and investmen of Garut city (2011)


Requirement of raw material for leather tanning processing include cow hide,
sheep skin and goat skin are provided not only from Garut but also from outside
Garut. For cow hide most of them ( approximately 90%) are supplied by outside
Garut area such as Central java, East Java, NTT, Sumatera (Padang and Medan),
Kalimantan and Sulawesi. While most of sheep skin are supplied by Garut
(approximately 80%) and the rest come from Sumedang, Majalengka and
Tasikmalaya.
In addition centre of leather tanning industry in Sukaregang have been
provided with waste treatment plant that is built under control of centre for
environment, cleanliness and landscaping of Garut. The name of the waste treatment
plant is UPK SIK (Unit Pengelola Khusus Sentra Industri Kecil Kulit).

CHAPTER III
RESEARCH METHODOLOGY

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III.1. RESEACH DESIGN


This study will be conducted through 4 steps. Firstly, from the literature study,
observation and interview with SME we analyze existing condition to identify
problem and causes of Indonesian leathers small and medium industry. Then, we
calculate Green Productivity Index (GPI) in each SME and combine with observation
data about the existing practices they have done. In the next part, based on the data in
the field, then we interview expert on green productivity, leather tanning process and
waste management to generate green productivity option to be considered as well as
doing SWOT analysis. Lastly, by analyzing in which part of the practices that can be
improved using SWOT analysis, then we formulate strategy to enhance green
productivity of Indonesian leather SMEs. For more detail of this reseach design can
be seen in the figure 3 below :

Start
Literature study
Interview
Observation on:
a. Good Housekeeping
b. Design Planning
c. Process modification
d. Waste Management

GPI portfolio

Expert
Judgement

Identification of factors
caused the problem
Identification of existing
practices applied
Data
collection

GPI measurement

Generation of GP
performance
improvement option

SWOT analysis

Strategy Formulation
Finish

Figure 3. Research Design

III.2. TYPE OF DATA RESOURCES


1. Primary Data

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Observation in industry and indepth interview with the stakeholders and experts
in the field of leather industry, waste management as well as green productivity.
2. Secondary Data
Literature study about the main concept of green productivity, green productivity
index, previous research of GP and its aplication in industry through journals,
report and other sources which related to this topic.
III.3. DATA COLLECTION
1. Literature review
Literature review is conducted to collect data from journals, books, reports and
other related source about green productivity concept, green productivity
measurement, previous research of GP and its apllication in industry through
journals, report and other resources which related to this topic.
2. Observation, interview and related data collection in the leathers SMEs
Observation and interview is conducted in SMEs in Garut, West Java to analyze
about existing condition as well as identify their problem and causes of the
problem. Observation as well as of the SMEs will be conducted in 3 SMEs in
Garut, West Java for 2 month from May - June 2014. Other related data collection
needed for GPI measurement also will gained in this time. Three SMEs selected as
observation location can be seen in the table 3 as follows :
Table 3. List of observation location
No
Name
Location
Jalan Gagaklumayung No.127 Kecamatan
1 PT. ELCO Indonesia
Sukaregang, Kota Garut.
2 PT. Karya Lestari Mandiri Jendral Sudirman Km.1 No. 21 Garut.
3 PD. Putra Setra
jalan Jendral Sudirman No.26 kota Garut.
3. In-depth interview with the experts
Indepth interview is conducted with expert on leather tanning processing, waste
management as well as green productivity. The type of the interview will be
followed semi-structure interview with open ended questions. The experts of this
in-depth interview can be seen in the table 4.

No
1

Table 4. List of Experts


Expertise
Institution
Leather tanning processing
Akademi Teknologi Kulit (ATK), Yogyakarta
Balai Besar Kulit, Karet dan Plastik (BBKKP)

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Waste management

Green productivity

Yogyakarta
Akademi Teknologi Kulit (ATK), Yogyakarta
Balai Besar Kulit, Karet dan Plastik (BBKKP)
Yogyakarta
Institut Pertanian Bogor (IPB) Bogor

III.4. DATA ANALYSIS


III.4.1. Green Productivity Index (GPI)
According APO, GP is a strategy for enhancing productivity and
environmental performance for overall socio-economic development. It is an
application of appropriate productivity and environmental management policies, tools,
techniques, and technologies in order to reduce the environment impacts of an
organization activities, good and services. This concept can bring the industry to be
aware about environment impact of their process and protect the environment without
sacrificing their economic performance through efficient resource utilization and
pollution prevention. Therefore, concept of GP is more acceptable for the industries
because it can enhancing productivity and performance simultaneously. Furthermore,
GPI (Green Productivity Index) is used as a measurement tool for green productivity
practices in industry to analyze economic performance and environmental
performance in one index.
Based on Hur et al. (2004) GP index measurement can be seen in the
formulation below :

GP index =

(Eq.1)

Indexing is a systematic measurement framework to define what to measure and how


to measure. Furthermore, Gandhi, et al. (2006) justified the Environmental Impact
by weighting the environment indicator of Solid Waste Generation (SWG), Gaseous
Waste Generation (GWG), Water Consumption (WC). as can be seen in the
formulation below :
GP index =

(Eq.2)

III.4.2. Green Productivity Portfolio

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According to Ik Kim et al., 2003 after measure green productivity ratio, the
value then plotted in the GP portfolio to know in which position companys green
productivity. Although there are statement that If GP ratio more than one it means that
a new system is better than the existing one from the perspective of GP, but by plotted
the value in GP portfolio we can clearly see in which stage the companys GP as well
as to look for in which part that have to be improved whether the productivity or the
environmental performance by seeing the current position of new system applied. GP
portfolio can be seen in the figure 4 below :

Figure 4. GP Portfolio
Furthermore, GP Portfolio makes it easy to see the effect of alternatives from
both environmental and economic perspectives.
III.4.3. SWOT Analysis and Strategy Formulation
After measure green productivity inside organization, as well as conducted
indepth interview with several experts in the field of green productivity, leather
tanning process and waste treatment, SWOT analysis is conducted to analyze on
strength, weaknesses, opportunity as well as threath of leathers SME. And based on
SWOT analysis, we formulate strategies to improve green productivity of Indonesian
leather industry, especially for SMEs.

REFERENCES

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16. Ramasami T, Approach towards a unified theory for tanning : Wilsons dream, J Am
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