Europes textile and clothing producer gear up for expansion - Free Textile Industry Articles - Fibre2fashion.com

Bulgaria is the fastest growing textile and clothing producer in Europe, according to a report by Textiles Intelligence.

Between 2000 and 2006, Bulgarian production of textilesexpanded by 152%, while output of clothing increased by 109%. By comparison, EU production of textiles fell by 21% over the six year period, while output ofclothing fell by 32%.

Furthermore, as one of the two newest members of the EU,growth of the Bulgarian textile and clothing industry seems set to continue.

The textile and clothing sectors success can be attributedto a variety of favourable factors.

Small tomedium sized enterprises

Between 65% and 95% of firms within the Bulgarian textile and apparel industryare small and medium sized enterprises (SMEs). These types of companies arecharacterised by their ability to:

* beflexible in their manufacturing operations;
* react quickly to changes in clients needs;
* provide speedy delivery;
* respond rapidly to requests for improvements in quality.

Geographicallocation

Bulgarias geographical proximity to the EU has enabled Bulgarian textile andclothing manufacturers to build strong relationships with customers in the EUand other nearby markets, especially when some of their closest competition interms of price and quality are low cost Asian manufacturers in China and India.

Lowwages

Average wage costs in Bulgaria are lower than in any other EU country(including Romania) and are also lower than in Sri Lanka, Indonesia and Russia. Salaries are on a par with those in Egypt, Mexico, certain parts of eastern China and Ukraine.

Labour costs play an important role in the competitivenessof textile and clothing manufacturers, particularly given the intensecompetition that manufacturers face from low cost producers in Asian countries.With this in mind, the fact that Bulgarian producers can compete with Chinese producers in terms of labour costs gives them an important advantage in an increasinglycompetitive marketplace.

Removalof hold-ups and tariffs at customs

As part of EU membership, trade between Bulgaria and other EU member states isfree from customs duties. Also, hold-ups at border points have been minimised.This should result in quicker deliveries to EU export markets, shortertransportation times, and reduced logistics costs.

Harmonisedhealth, safety and environmental (HSE) regulations

A number of government enforced regulations -- such as those relating tohealth, safety and the environment -- have been harmonised with those of theEU. As a result, Bulgarian manufacturers who achieve international quality andenvironmental certification will stand in good stead with European buyers.These improvements may also open up Bulgarias textile and clothing industry toa wider range of potential investors who enforce strict health, safety andenvironmental (HSE) policies with respect to their business operations.

Europeanmentality towards doing business

Another competitive advantage is that Bulgarian textile and clothing industryenterprises have a more European mentality towards doing business than theircompetitors in low cost Asian countries such as China and India.

Fixed exchange rate

The Bulgarian Leva is pegged to the euro at a fixed rate (Lv1.95583:Euro1.00)and it is forecast that this rate will continue until 2010. For potentialinvestors based in the EU, a fixed rate of exchange removes currency risk. Bycontrast, in countries where the exchange rate is not fixed to the investorshome currency, investment values could decline if there were a significant fallin the value of the local currency.

Challenges

Admittedly the sector faces a number of challenges, and these need to be addressed if the future development of the textile and clothing sector is to be secure.

The migration of skilled workers, or a "brain-drain"

One threat to the future of the textile and clothing industry in Bulgaria is that a large proportion of its skilled labour, particularly those who can speak English, will migrate to better paid jobs in other parts of the EU and leave the industry in Bulgaria short of skilled labour.

New regulations may force factory shut-downs

Companies may also find that adherence to new health, safety and environmental regulations is a challenge. Poorer companies may not be able to afford the costs which are necessary to implement changes to their business operations. Some closures may therefore be inevitable. However, on the positive side, the operations which shut down represent opportunities for foreign investors who are looking to buy production facilities in Bulgaria. Furthermore, the companies which survive will be fitter and leaner, and therefore better able to survive in the post-quota era.

Low labour productivity and underinvestment

Labour productivity in the Bulgarian textile and clothing sector equates to only 38.1% of the EU average, and the level of investment in new equipment and capacity expansion is low. Bulgarian clothing manufacturers are reluctant to modernise because they are unable to recoup their investment costs by raising prices without losing their competitiveness. Consequently, any increases in costs must be borne by manufacturers through a reduction in profit margins.

Reliance on textile imports

The Bulgarian clothing sector tends to rely on imported textiles from other countries rather than use domestically produced textiles. This often leads to longer production lead times and hence slower response, as well as higher raw material costs.

The output of the Bulgarian textile sector is not large enough to support the local clothing market. Consequently, unless there is a concentrated burst of investment in the textile industry, clothing manufacturers will remain dependent on imports of textiles for their raw materials and their profit margins will be decided in part by the price of textile imports.

Outlook

In general, it seems that the textile and clothing industry in Bulgaria is on a knife edge. On the one hand, investment will be needed if the industry is to maintain the growth pattern witnessed since the start of the decade. There is also known to be a grey economy, and illicit working practices will need to be stamped out now that Bulgaria is part of the EU. On the other hand, Bulgaria has a number of advantages as the lowest cost EU country. EU membership may encourage much needed large-scale investment in the sector. This would boost productivity, increase economies of scale, create new jobs and generate higher value exports.

About the Author:

Sam Anson
Textiles Intelligence and AKTRIN Textile Information Center
Web: Marlet Reports on the Global Textile and Apparel Market

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