Fashioning the future: Challenges for the European textiles and clothing sector
Examining the broad trends and drivers of change in the textiles and clothing industry was the subject of a two-day workshop organised by the European Monitoring Centre on Change (EMCC) in Nottingham on 16-17 December 2004. Held at the Nottinghamshire International Clothing Centre (NICC), this workshop was attended by some 30 representatives of the European textiles and garment industry, including the European Commission, national textiles trade associations, university researchers and sector specialists. Scenario techniques were used as a tool to intensify debate on the future of the European textiles and garment industry leading to a greater understanding of the management of change at company level and also to the formulation of recommendations for both regional and EU policymakers.
Who?
Some 30 people attended the event, with the majority of delegates coming from the EU textiles industry. Also in attendance were regional, local and EU policymakers responsible for the textiles and garment industry in Europe and representatives from the United Nations Industrial Development Organisation (UNIDO) and India Trade Promotion Organisation (ITPO), and the academic communities. All attendees had first hand experience of the textiles and garment industry and were fully aware of the many changes and uncertainties facing the industry today. A series of presentations were used to guide the workshop and its discussion sessions. Company representatives from the Quantum clothing group and Brinton’s carpets were among the speakers as was the representative of the European Commission DG Enterprise who is responsible for the sector at EU level. The scenario authors facilitated the discussion thereby enhancing understanding of a wide range of subjects related to the current challenges facing the sector.
Why?
The textiles and clothing sector has experienced a revolution since 1 January 2005 as a result of a decision taken at the Uruguay Round of trade negotiations 1986-1994. The quota systems existing between members of the World Trade Organisation (WTO) ceased from that date. This has enabled major buyers of textiles and clothing to rationalise their supply networks. Consequently, this has given rise to fears that Chinese products will eventually supplant all others in clothing stores worldwide.
Europe has already lost many jobs in garment manufacturing to Asian countries but the textiles and garment sector still remains an important employer in the west. The EU has a turnover of some €200 billion produced in roughly 230,000 companies, employing more than 2.7 million people. This is expected to rise to over 3.3 million with the accession of Bulgaria and Rumania and a further four million will be added from neighbouring Mediterranean countries. The share of the textiles and clothing sector, in terms of total manufacturing value added at EU level, amounts to roughly 4% and the share of total manufacturing employment level is around 7%. It is predicted that the end of the quota system will result in a loss of 15% of the jobs in this sector in the United Kingdom alone and 13% in Germany. It follows that the European textiles and clothing industry faces strong competition and needs to identify its unique strengths and competitiveness in order to remain successful. Inevitably, meeting that challenge will impact on employers and trade unionists, and be of great concern to regional and European politicians and policymakers.
What?
The EMCC anticipation workshop aimed at examining the broad trends and drivers of change in the textiles and clothing sector as a whole and how change is perceived and managed at company level by managers and workers. In particular to:
- anticipate future developments for the sector through in-depth work using scenario techniques;
- reflect on strategies for change;
- consider survival and growth in the next 10 years.
Day one
Workshop participants were welcomed by Judy Mallaber, MP for Amber Valley and chair of the UK parliamentary all-party group on textiles. She focused on the action taken by the UK government in order to stimulate and protect its once very important textiles and clothing sector, especially in the Midlands region. The UK parliamentary group is in the process of developing a UK government policy on textiles. This policy will address issues such as skills improvement, niche marketing, fashion and design, education and innovation for technical textiles and other exiting new developments.
Underlining the importance that the European Commission (EC) gives to maintaining a robust textiles and clothing industry in Europe, the keynote address was given by Alison Imrie, Senior Administrator of the EC’s DG Enterprise, who updated the audience on the Commission’s EU communication Textiles and clothing after 2005 (COM(2004) 668 final).
Jonas Svava Iversen of the Danish Technological Institute (DTI) presented the results of studies on the trends and drivers of change and introduced the audience to the four scenarios exploring possible future developments in the sector.
Day two
A working session was held to address issues arising from the scenarios presented on the previous day, together with the current experiences of textiles companies in the UK and US. Presentations from company representatives and sector experts covered:
- perspectives from the east Midlands region on the future of the textiles sector and strategies for survival by Lynn Oxborrow of the Nottingham business school;
- the story of the Quantum clothing group, a company created in a management buyout from Coats Viyella by Karan Woodward of Quantum;
- the story of Brinton’s carpets and Telford yarns, a seventh generation family carpet-weaving company adapting to change by Peter Wright;
- the US garment sector in New York by Peter Doeringer of Boston University.
The workshop allowed participants to question company representatives and sector experts.
The final presentation was given by Chas Hubbard, Workforce development director of the UK skills provider for the sector, Skillfast-UK, whose mission is to reduce skills gaps and shortages. They anticipate the UK’s future training needs through leverage on the supply side of education and training.
Working groups
In the two working groups, participants considered the information given in the different presentations, looked at the drivers of change and responded to the scenarios. The groups identified the characteristics of a survivor company, debated whether current company policies, strategies and decisions are robust enough to meet the challenges of the future and identified what needs to be challenged and changed. The observations were presented in a final plenary session.
Highlights
EU Commission communication
In October 2003, the EU Commission adopted the communication The future of the textiles and clothing sector in the enlarged EU (COM(2003) 649 final). This communication demonstrated for the first time the sectoral application of a horizontal industrial policy. It takes into account the specific characteristics of the overall context of the textiles and clothing sector while ensuring the best possible framework conditions for all businesses in the EU.
The main message of the 2004 EU communication on Textiles and clothing after 2005 (COM(2004) 668 final) was that the sector in Europe needs to increase its competitiveness by concentrating on its strengths.In order to identify the policy responses needed to make this possible, an EU high level group for textiles and clothing was set-up early in 2004, comprising of members from the industry and trade unions, government representatives of Member States (where the sector plays an important part), trade associations as well as the three EU Commissioners.
Notwithstanding the great concern and support for the sector, the Commission does not recommend the creation of a new and specific regional initiative or programme targeting the sector only. There is, fortunately, already numerous initiatives in place responding to various sectoral needs. More are planned and success depends on the industry’s willingness to take full advantage of these opportunities so that they can move towards the required sustainable future in Europe.
Drivers of change
Trends and drivers of change for the textiles industry were presented so as to increase participants’ understanding and to facilitate their working with the four scenarios specifically developed for the workshop.
The impact on the industry, sector, companies and individuals of new technologies, social development, the economic impact, policy changes and the environment were seen to be the most important drivers of change.
Technology
Rapid development in information and communication technologies (ICT), together with the development of new materials as well as changes in production technology all impact on the sector. ICT is an essential element of the drivers of change and this means that it is not about technology alone but also about its use. At present, insufficient sectoral knowledge is available to enhance development in this respect. New skills combinations, in management, design and innovation in production technology must be developed.
The development of new intelligent materials and products are two sides of the same coin, and may lead to materials with several different functions (for example, a car made of textiles, garments monitoring heart beat, etc).
With price pressure on bulk, it is the flexibility and intelligence of the means of production that may offer competitive advantages in new production technologies. The challenge is thus, how to engage EU companies in research and development (R&D) and product development in order to stay ahead of the (non-EU) competition.
Social development - changes in consumer behaviour and consumers themselves
The trend for individualisation and customisation continues and increases. New consumer patterns are emerging as our ways of living change. Considerable demographic change is foreseen with a growing number of single person households and an ageing population with different demands and needs. This challenges companies to develop new opportunities for marketing intelligence and new marketing strategies alongside new production methods.
Economics - dominated by globalisation
The consultancy firm, AT Kearny, describes globalisation as ‘the ability to move goods, information, persons and values seamlessly’. For the sector, the sourcing of low value-adding activities will increasingly go to low cost countries, with more aggressive retail strategies in the west and the emergence of new markets. New sourcing strategies are to be developed, requiring better supply chain management together with a strong connection to technology. This challenges companies to identify the best opportunities throughout the value chain globally and to think globally in a market perspective.
Policies and environment
Although the Agreement on textiles and clothing (ATC) has now ended, new forms of non-tariff barriers continue to be developed. Taxation differences in the countries of origin and destination are counteracting liberalisation policies, and it is uncertain what will happen to sourcing countries in the Euro-Mediterranean area and EU access to emerging markets. EU legislation - including national - has to find a balance between concern for the environment and the competitiveness of EU-based companies. The pressure on EU countries of low-skill, low-value adding jobs moving away, accentuates the need to create jobs and products in the ‘high-end of the value chain’. EU policies are, therefore, needed to increase innovation and flexibility of the labour market.
Four scenarios
The objective of ‘future scanning’ and working with scenarios is to enhance the individual ability to deal with change. Since the future is unpredictable, we can only speculate, challenge our existing mental maps and stimulate vision and flexibility. It follows that although the scenarios are not concerned about predicting the future, they do describe plausible futures based on well-researched data. They are designed to be relevant, divergent, challenging and thought-provoking. The following four scenarios are built across five pre-defined and key dimensions:
- First dimension: Tech 1 = use of ICT may be high or low
- Second dimension: Tech 2 = nano, Bio and production may be high or low
- Third dimension: EU = may be more or less successful
- Fourth dimension: international trade is open or closed
- Fifth dimension: the market is good or bad
Each scenario describes a different Europe in the year 2010, highlighting unique aspects while considering that each one could be a possible reality. The table below shows the variations taken into account for the four scenarios.
Table 1: Industry-specific effects of the scenarios
Source: EMCC, Knitting the future of the textiles and leather sector: Four scenarios, June 2004
Scenario 1: Perfectly prêt à porter
The enlargement process of the EU has been a significant success and it is emerging as a very strong actor on the world stage. International trade is free but fair, and companies are looking for business opportunities all over the world. Technology plays an important role. The right policy responses to challenges for education and R&D in public/private partnerships are elements chosen for this scenario. This is a blossoming industry.
Scenario 2: Rags and riches
EU companies are maintaining their competitive advantage, but developments of international trade, ICT, and production technology prevent them from exploiting these advantages outside Europe. EU policy and initiatives have played an important role in the development of companies’ competitive base, and challenges related to labour market issues are solved by up-skilling and re-skilling the workforce. There are difficulties in finding the optimal balance between a value offer and market demand.
Scenario 3: The Emperor’s new clothes
Innovation is not really happening and there is limited progress in the use of ICT. The EU has failed in many ways and most EU textiles production has therefore been outsourced or closed down. International trade is very open, and consequently many EU companies find themselves in a cost game where they are having a hard time matching the price/value offers of companies based in emerging-market countries. However, the demand and trade is there, but with very high entry barriers.
Scenario 4: Driving Miss Daisy
Innovation and product development is increasingly taking place outside the EU. The EU has not been able to leverage on opportunities created by enlargement and the wrong policy options have been followed. International trade has developed rapidly, but European companies focus on the European market, even though the competition in this market is becoming stronger as emerging companies from Asia enter it. There are high entry barriers in the EU.
| The full scenario descriptions and report, Knitting the future of the textiles and leather sector, are available for downloading free of charge as a pdf file on this website. |
These scenarios were discussed in two working group sessions, stimulating thought on the possible management of change and understanding of the potential impact of drivers of change on day-to-day business. Feedback was given in the form of observations on possible action (see below).
Perspectives from the east Midlands region on strategies for survival
Employment in the UK textiles and clothing sector, with currently 150,000 jobs, declines at a rate of 11% per annum, with most job losses in the clothing sector and specifically among women (84%). At the same time, clothing production output halved from 1995-2002.
The textiles, clothing and footwear industry is a very significant manufacturing sector for the east Midlands region, currently providing 50,000 jobs, with above average female and full-time employment positions, but losing some 10% of these every year. The sector is dominated by small firms, with a core of mid-sized manufacturers and a presence of some large multinationals with company-owned overseas production.
Strengths and weaknesses of the region
The region’s strengths are its diversity in types of companies and products, regional concentration of skills, a good support structure and high investment.
Its weaknesses are companies’ over-dependence on ‘high street multiples’. This dependency of suppliers on their buyers implies that they are losing market orientation and the capacity for technological development and change. With low cost retailers growing, they have to compete on price alone, which becomes almost impossible. And the most predicted high growth area in the sector is in non-wovens which are not manufactured in the east Midlands.
There are potential growth areas outside the clothing sector such as vehicles and transport, medical and pharmaceutical, sport and leisure, and in work-wear.
Regional cluster support
Companies striving to remain successful in the future need all the help they can get. Assistance is already well organised in the east Midlands. A cluster of organisations such as Skillfast, Technitex Faraday, UK Trade and Investment, EMTEX, EMCAT, the Nottingham International Clothing Centre (NICC) and sheltered incubator/work units are available to support the sector in adapting to the future.
The east Midlands textiles industry of the future will encompass smaller firms with a higher technological capacity and will be less tied to tradition. They will be market-led and consumer driven and staffed with more technologists, IT specialists, designers, marketers, and led by professional business managers.
Quantum Clothing Group - company profile
The Quantum Clothing Company was created on 4 December 2000 in a time frame of 60 minutes in a management buy-out after the folding of the Coats Viyella company. In 2000, Coats Viyella supplied goods to the value of £245 million to Marks & Spencer, who were their sole customer. Despite the sales volume of £245 million, the company recorded an operating loss of £37,776, with a UK workforce of 4,141 people and an offshore workforce of 3,863. Now after some four years of new ownership, the Quantum Clothing Group has managed to turn the tide, showing an operating profit of £3000 and £72,000 in sales, employing a reduced UK workforce of 1,200 and an overseas workforce of 3,000 people. The technical staff, embracing logistics, design, commercial and finance departments and some dye making activities, are still located in the UK with manufacturing and sourcing in Cambodia, Mauritius, Indonesia, Lithuania, Vietnam, Sri-Lanka, Morocco, Northern Ireland, Colombia, Turkey, Sardinia and China. The Quantum strategy on where to manufacture is based on costs, lead-time, communication and (owned or sourced) production. Offshore wage rates are one-tenth to one-third of UK wages but in the total breakdown of costs the direct production labour cost is only 1.5% of the final retail selling price. Full duty rates into the EU are 12% of the total landed cost including insurance and freight (CIF).
Supplying to Marks & Spencer still counts for 90% of their sales while 10% comes from other customers. So if M&S were not there, Quantum would not exist. Quantum is customer focused and sees the different M&S buyers and their customers as their own customers too.
Quantum sets high standards for all their activities and in all their sites. They treat and train their staff well, with UK standards exported to offshore sites, sometimes even exceeding them. These standards are adhered of their own volition and not because M&S requires it from them. Quantum is a member of the ethical trading initiative (ETI).
Innovation at Quantum is not only applied to product development but also to the way ‘they do it’. Their strategy is to remain customer focused, to increase sales through innovation and service, to maximise current assets and to remain financially independent. They will continue to reduce costs and keep their independence. Although the folding of Coats Viyella was a serious blow to the east Midlands textiles industry and to those who worked for it, Quantum has managed to create a modern and forward looking, financially independent company serving as a role model in the region.
Brinton’s Carpet and Telford Yarns - a seventh generation family carpet weaving company
Brinton’s carpet weaving and spinning mills started operating in the east Midlands in 1883 and is considered to be the best and the largest company of their kind in the UK and the biggest in the world. They are able to provide for large scale professional carpeting projects such as cruise ships and the Hong Kong Airport while their products for domestic customers are sold through respected specialty shops in the UK and abroad.
Their turnover is £100 million, and the company owns one out of every eight sheep living in the UK. They employ 2400 staff of which 50% work in the UK. Their employees are loyal to the company with an average term of employment of 23 years. 65% of the production is customised, 75% of sales is for commercial application and 25% for residential use. The company is privately owned, vertically integrated with manufacturing technology second to none and is skilled and innovative.
Brinton is a global company with a factory in Portugal and Australia and a spinning, weaving and dying plant in India. Although the spinning process has not changed dramatically, Brinton has become a technical company with computers revolutionising the design and weaving processes.
The future is about survival
Brinton intends to remain a family and privately owned business, investing in their strong and upmarket brand, with their product respected as the Rolls Royce among carpets. It will offer an expanding service package especially in design and installation, and will seek out new or growing sectors and markets. To stay ahead it intends to reinvest in people and equipment, and continue with research and development (R&D). It intends to relocate labour intensive activities away from the UK and outsource non-core activities.
There are, however, factors outside their own competence that will influence the quality of survival of Brinton in the next five to 10 years. For example, the impact of low cost competitors from eastern Europe, the middle east and the far east; increasing environmental issues such as the need for recycling and higher oil prices and EU legislation and regulations on working hours and pensions, will influence profits. Political uncertainties and currency fluctuations already have a great impact on the company: Brinton has a large US market, so the strength or weakness of the US dollar influences their success there.
Perspectives in the US: can the US garment industry compete?
The US garment industry has seen rapid changes since the 1950s to the present day: From large branded manufacturers to global supply chains, to lean retailing and delocalisation of production to Mexico and the Caribbean, to the point where there is no production in the US except by some small firms in the state of New York. Even quick response production activities have left the US.
However the few survivors reveal interesting characteristics:
- Large, vertically integrated firms are so automated that a pair of socks can be produced in two to three seconds. Thus, labour costs have become irrelevant.
- Companies with some 200-500 employees are producing re-orders during the seasons, especially for basic fashion such as shirts and trousers. These types of companies will very likely disappear.
- Small contractors and manufacturers are operating in a broad range of niche markets such as high fashion, large sizes, surgical clothing, samples
and high-tech sportswear. Their customers are speciality chains such as GAP needing reorders and rework, while large retailers and manufacturers use
them as sample makers. Their competencies and unique selling propositions are:
- extreme flexibility;
- low volume order runs;
- quality;
- three to four times faster than the regular supplier.
Their future is a ‘maybe’. They remain stable and secure as long as their growth is limited. Once they become really successful and grow larger, decentralise, while remaining too dependent on their market niche customers, they collapse with them. Their business development limitations are a result of their entrepreneurial weaknesses, poor management, capacities and lack of planning. They cannot develop a full package of products or services since they lack the capital and managerial skills. Once they fold, so too does the sector.
What can be done to save these New York companies?
The provision of training and industrial support and the offer of R&D for the small scale company is a pre-requisite. Such companies will require a rethink of the supply chain and be prepared to make radical changes. Small manufacturers are already doing some design work on the level of fashion, and they need to embrace the notion of quick response times. A supply chain for young designers is needed, enticing them to deliver design to a fragmented group. Fashion re-orders and technology for mini-fashion mills could be developed, whilst speciality stores are more and more eliminating seasonal purchasing and sales and may need a continuous rolling offer. The power of the large retailers is such that it is not often possible for these companies to gain an entry to this particular market. However, they may have a chance with smaller retail chains and speciality stores.
Support instruments for increased success could be:
- Branding e.g. ‘Made in New York’
- Government to encourage sourcing in New York
- A segment of New York consumers is becoming increasingly bored with the offerings of the large retailers, so the greatest hope lies within changing consumer preferences.
Skilling the textiles and clothing sector of the future
Skillfast, UK, a skills body for the sector, believe that reducing the skills gaps in an industry facing increasing demand for specialised skills is the best way to compete on a global market.
Skillsfast challenged the audience with the following questions:
- Can it be made easier for businesses to meet the changes of global manufacturing when it requires several business approaches to sustain company profitability?
- How can today’s young people be enticed to work in the textiles and garments industry? Does it need to be renamed to ‘Fashion and technology sector’ to make it more attractive?
- What skills are needed to be fast enough and perfect enough to meet future demands and create sustainability for these companies?
At present 80% of the employees in the UK have no qualifications and it is predicted that by 2008 around 80% of the jobs will require a competence at level 2 (high school). In particular, manufacturing knowledge, communication skills, management techniques, and technology skills are needed. At present only 18% of companies arrange for training of staff on a regular basis. And in some eight to 10 years the present leaders of the industry will retire. Graduates with technical skills will be in high demand and costly to the employer. There is, therefore, an acute need to support the industry by co-ordinating and combining existing training and skills policies so as to make them work to best effect to meet the needs of the sector.
Sound bites from the working groups action
Action for companies
- Companies have to look after themselves, they need to develop their capacity to change, manage change actively and shape their own future.
- EU companies could form knowledge-based networks and create hubs of resources for R&D, technology development and for design with the support of government.
- Companies are to develop relations with the closest parts of their value chain.
- Companies are to study and possibly follow the ‘Zara’ business model - light, quick and nimble.
- Update technology, versus remaining like old museums.
- Diversify company structures.
- Consider the relationship between product development and production and the tacit knowledge factor gained from it. Outsourcing all production may result in loss of essential knowledge.
- Companies are to be aware of the true costs of taking production offshore; losing their own production skills may prove to be very costly in the future; i.e. short term versus long term effects.
- Human Resources strategies should be focused on attracting and developing talent.
- It is not necessary to be big to think big, but to think big is important in preparation for change and survival.
- Work together, trade together (a geographical relationship seems to be important in this respect).
Actions for EU regional and national governments
Civil service organisations should find out what companies really need and be prepared to lend intelligent support to firms, not only to the strong companies but also to the struggling ones and certainly to those motivated to change. They should also provide continuity of that support in the form of a focus on managing change and shaping the future through public-private dialogue and action, such as:
- Create hubs of resources for and with companies and create closer connections between research, policy and practice.
- Support regional ‘centres of excellence’ servicing larger numbers of companies.
- Organise transnational learning within the EU.
- Retraining should be done properly and not ‘on the cheap’.
- Upgrade the ‘image’ of the sector from old fashioned to smart and technology-driven.
- Because of the steady decline of the sector, SMEs have experienced increasing difficulty in finding finance for investments. The development of financing opportunities for SMEs will stimulate development.
- Reduce red tape to a minimum.
- Finally, a very practical observation: standardise customer sizes throughout the EU so a size 38 is common to all EU countries.
Action regarding technology
The impact of technology and mass customisation will certainly come but will take some time. This time should be used for learning and preparation by the sector in the EU. Coincidentally, the quality of ‘off the shelf’ products is already high and this may temper the customer’s desire for customisation.
Companies should work together with customers in new product development and R&D.
Action on branding
Create a label and promote: ‘Made in the EU’ and/or ‘Made by Europeans’ thus branding the sector, and creating a positive image.