28/10/2015 — auf Deutsch lesen
Rising wage costs and pressure on prices triggered by the liberalisation of global trade are forcing, above all, West European clothing makers to shift production or labour-intensive processes ever farther eastwards. An analysis of the situation from the River Oder to the Urals.
Supply-based business relationships with Romania and Bulgaria have been intensifying in recent years, mostly to the detriment of Poland, Hungary and the Czech Republic. Locations with a long tradition in textiles, once reputed for their fine textiles, are increasingly focusing on niche products or the promising field of technical textiles.
Mainly Bulgaria and Romania, whose labour costs in the clothing industry hover in the region of 1.80 Euro to 2.66 Euro per hour (statistics from Eurostat 2012) and, to a growing extent, Moldova are currently producing large volumes of mid- to top-range fashion destined for West European markets.
These countries are strategically well positioned right in the heart of Eastern Europe. Romania is classed as the biggest supplier of apparel among the countries of Central and Eastern Europe and is often referred to as the “China of the West” or “Europe’s sewing shop”.
To cite an interesting example, Speidel, headquartered in Germany’s Bodelshausen, moved its making-up operations to the Austro-Hungarian border as long ago as the late 80s. In the year 2000, the company set up a second facility in Focsani/ Eastern Romania, covering an area of 5,600m² and employing 230 staff. This is where all the labour-intensive production steps are carried out with women working at sewing machines and making up the garments. The knitting process, post-treatment, finishing and dispatch all take place at the headquarters in Bodelshausen, Germany.
Summing up, Hans-Jürgen Speidel, Director of Technology and Production, also for the facilities in Hungary and Romania, states: “Our experience with our East European production sites has been extremely positive, both in terms of logistics and quality, not least because we have full control over the processes.”
Zara, Steilmann, Hugo Boss, Pierre Cardin, Benetton are just some of the brands that have opted for Romania and can boast in their advertising campaigns that their products are “Made in Europe”. Following the tragic disasters in Asian textile factories, branded companies see a shift to Eastern Europe as an important marketing factor. However, this is by no means the only benefit: Romania’s minimum wage, for example, equates to around EUR 150 per month; moreover, the country can produce and deliver in less than a week, and companies can make considerable savings in the European market in terms of logistical and labour costs.
The effect of currency fluctuations should not be underestimated. The increase in the value of the US dollar is making East European production facilities more competitive.
It appears, however, that the low wages in the textile industry coupled with the rising cost of living since Romania joined the EU in 2007 are leaving many textiles vacancies unfilled. In response, companies are trying to hire foreign workers (from China, the Philippines) or invest in industrial robots.
Bulgaria’s textile and apparel industry is currently upbeat and has a keen eye on the export market, fostering links with foreign clients. Barely a tenth of its textiles output remains in the country and the industry is using this opportunity to invest in modernisation. The Greek-led firms established in Southern Bulgaria have a particularly sound reputation.
The Republic of Moldova and the Ukraine are emerging as ever more serious competitors to Romania, as they threaten to lure away western clients with even lower labour costs. In Moldova, a total of 330 clothing companies are registered (2013); the clothing industry is one of the Moldovan economy’s biggest employers and exporters (11.8 % in 2013). The period from 2001 to 2008 saw apparel exports more than triple. Around 80% to 90% of the clothing produced is made within the framework of outward processing. The majority of clothing factories are Moldovan owned, with 16% in foreign hands (Italian, Romanian and Turkish). As it modernises its economy, the Republic of Moldova is receiving support in the form of special loans and funding programmes from the EU, the European Bank for Reconstruction and Development (EBRD) and the World Bank. These programmes can also benefit German and foreign companies wanting to get involved in Moldova.
Similarly, Belarus is edging onto the radar of European branded fashion producers and Russian chain stores (e.g. Tvoje) as an attractive job-processing location. At the same time, West Ukraine (labour costs in Ukraine’s clothing industry: 1.58 Euro per hour) is gaining significance for foreign companies looking for suitable contractors (e.g. Basler). Farther east, in Tichvin near St. Petersburg, Comazo GmbH & Co. KG, based in Albstadt, Germany, opened a production facility for underwear 20 years ago. The operation is fully integrated from the imported yarn, whilst the products are distributed in Russia under the Komazu brand. The company produces thermal underwear, among others, for the Russian army. Fashion houses such as Marc Cain, Roy-Robson, Bugatti and the like, describe their constant “restlessness” and their incessant investments in changing supply chains as central to their success. Roy-Robson’s Head Heiko Westermann said he had “travelled the length of the Balkans in search of more affordable producers.”
Despite the many fundamental benefits, such as its close proximity to West European markets, shorter delivery times and stable, long-term business relationships, the advantages these East European locations offer are, in fact, limited. In the long-run, the wage costs will be higher than in Asia, with additional costs arising as the new EU countries adjust to and comply with EU standards. Other drawbacks include the fragmented corporate structure and the weak capital base and financial clout associated with this. Not forgetting the disadvantages relating to the lacking availability of upstream products compared to China. Strategic approaches for East European companies should include stepping up their Research & Development efforts and focusing on market niches. Examples of pioneering efforts in the past include the establishment of the cross-border network known as Euro Textil Region, the "Textile innovation environment in ACC" project (Envitex) and other international initiatives such as Inmatex and Incotex.
Here, you can find Part 1