EMCC dossier on the European textiles and clothing sector
The textiles and clothing industry represents a significant sector of economic activity in world trade and also within the European Union. Due to various pressures for change as a result of consumer developments, technological advances, changes in production costs, growth in retailers’ purchasing power and environmental issues, the European textiles and clothing industry is characterised by being in a state of continuous restructuring and modernisation. Moreover, the dynamics in the industry are currently much influenced by the liberalisation of international trade. These challenges are being faced against a background of relocation of production and activities to low-cost countries, diminishing skilled labour force and ongoing technological change. This dossier examines the current state of the textiles and clothing sector in general, and the specific situation of four leading companies in the field. It examines the role that location plays in textiles and clothing, through an analysis of location decisions and profiles of two major textiles geographical clusters. It also puts forward a number of possible future scenarios for the development of the sector over the next decade.
The textiles and clothing sector is a highly diverse and heterogeneous industry which covers a wide variety of end products, ranging from hi-tech synthetic yarns to wool fabrics, cotton bed linen to industrial filters, or nappies to high fashion. This diversity of end products corresponds to a multitude of industrial processes, enterprises and market structures.
Over the past decade, in particular since the abolition of trade quotas in the sector on 1 January 2005, the European textiles and clothing sector has undergone significant changes to keep abreast of competition in the global market. The sector has also been facing increased competitive pressure due to technological changes affecting production processes, as well as end products themselves. As a result, in order to remain competitive, the industry has had to restructure and modernise itself, as well as to relocate its production to lower wage countries both within and outside the EU.
The textiles and clothing industry is one of the most international sectors in the world. The sector is notable for having a predominance of small and medium-sized enterprises (SMEs) and a high proportion of female workers. In terms of production, the manufacturing of textiles and the manufacturing of clothing are very different: manufacturing of textiles requires major capital investment, while manufacturing of clothing requires significant human resources.
Today the competitive advantage of the European textiles and clothing sector lies in its focus on quality and design, innovation and technology, and high value-added products. This, in turn, also requires adequate education and industry-specific training programmes for a generally low-skilled workforce. One of the challenges that the sector is currently facing concerns the growing shortage of qualified human resources, which is most acute in the field of higher education graduates in textiles engineering.
Trends and drivers of change
The dossier’s mapping report explores the current situation in the textiles and clothing sector and identifies key trends and drivers of change affecting the sector. Trade liberalisation, increasing competitive pressure from countries outside the EU, demographical developments, new technological developments and the introduction of new regulatory requirements are among the most important factors bringing about change to the sector.
The continuous liberalisation of trade in textiles has considerably affected the European textiles and clothing sector and poses a major challenge. To counteract the threat of the market being flooded by Chinese textiles and clothing, the EU and China drew up an agreement in June 2005, aimed at managing the growth of Chinese textile imports to the EU by limiting the rate of imports on 10 product categories, while also allowing fair and reasonable growth for Chinese exports. In the 1995 Barcelona Declaration, the Euro-Mediterranean Partners agreed on the establishment of a Euro-Mediterranean Free Trade Area (EMFTA) by the target date of 2010. Together with the European Free Trade Association (EFTA) comprising Iceland, Liechtenstein, Norway and Switzerland, the free trade zone will include some 40 countries and between 600 and 800 million consumers, becoming one of the world’s most important trade entities.
While global economic activity remains resilient and consumer price inflation has eased in industrialised countries, the recent rise in oil and commodity prices signals a possible renewed increase in global inflationary pressures in the near future. Key risks to future economic growth include shocks to financial markets, concerns about protectionist pressures and further increases in oil and commodity prices. Economic growth and the increased purchasing power of people in countries outside the EU constitute a growth opportunity for European companies.
With the European integration process, the EU increased to 27 Member States. Current candidate countries include Croatia, Turkey and the former Yugoslav Republic of Macedonia, while Albania, Bosnia and Herzegovina, Montenegro and Serbia including Kosovo are potential candidate countries. The enlargement process and the gradual building up of the internal market has been increasing competition in the sector and provides an opportunity for retailers to source manufacturing activities to low-wage countries in central and eastern Europe. The new Member States also represent markets for textiles and clothing companies.
New technologies and the innovative use of existing technologies are vital to fostering the competitiveness of the European textiles and clothing sector. Innovation in the production process can contribute to raising the sector’s productivity, improving working conditions and promoting sustainable manufacturing. In the clothing industry, new technologies will enable the EU industry to offer products tailored to the individual needs and wishes of a customer, while being manufactured in a mass-production system. The development of new materials (such as ‘intelligent textiles’) based on biotechnology, sensors and ICT is paving the way for new innovative products, such as biomedical clothing.
Most European citizens take into consideration the environmental impact of the products that they buy, as well as social matters such as working conditions and child labour. This has led companies in the sector to use ‘green technologies’ and monitor every part of the value chain in order to avoid corporate scandals that could harm their brand – for example, children working with dangerous chemicals to produce garments. Corporate Social Responsibility (CSR) and ethical sourcing are thus becoming vital elements of business strategies in the textiles and clothing sector. One initiative in this area is the United Nations (UN) Global Compact framework for businesses which are committed to aligning their operations and strategies with 10 universally accepted principles in the areas of human rights, labour, the environment and anti-corruption.
Social and demographic developments
Due to declining birth rates and improved health, European populations are reducing in size while growing older. Consequently, the European market for textiles and clothing is also shrinking as the consumer base is becoming smaller. Another trend in the sector is that young people are not taking over the family business when their parents reach retirement age, and consequently many company owners must either find someone else to take over the company or close down when they retire. Rapid changes in fashion mean that companies in the sector need first-hand information about emerging trends in key consumer segments.
New international standards and regulatory issues are likely to affect the development of the textiles and clothing sector in the future. The main areas where new regulation has been or will be introduced include consumer protection, labelling, environmental protection, use of chemicals such as the European Community’s REACH regulation, and health and safety in the production of textiles and clothing. Clothing and textiles manufacturers have responded to the pressures for enhanced consumer protection with increased scrutiny of the chemicals that they use in their products. There is also pressure to protect European textiles companies from the threat arising from the illegal counterfeiting of goods.
Company case studies
The dossier gives an in-depth profile of four leading companies in the European textiles and clothing sector. The portraits highlight the various challenges experienced by individual companies and show how they are each responding to current changes in the sector.
- Farbolux Biliński (pdf, 122 kb) is a Polish company specialising in the production and finishing of all kinds of textiles and fabrics. Significant layoffs have been avoided in recent years as existing staff have been retrained for other functions within the company. With its focus on flexibility of processes and producing high-quality products rather than outsourcing production to low-cost countries, Farbolux Biliński has continued to develop close connections with customers and suppliers, as well as introduce automation and up-to-date technology. In doing so, the company has managed to increase productivity levels, expand production and improve turnover in an increasingly competitive market.
- Kvadrat (pdf, 119 kb) is a leading textiles company based in Denmark, specialising in the design and sale of high-quality interior textiles. In recent years, it has branched out into new markets such as the retail and shipping industries. Kvadrat has made a strong comeback since a recession affected the industry in 2002, by adopting a forward-looking strategy aimed at future growth. The company’s 2007–2010 strategy is based on product diversification and market expansion through partnerships, as well as consolidating the company’s position in Europe while expanding its position outside Europe. Key challenges for the future include price pressures in the furniture industry, along with recruiting employees with specific competencies.
- Royal TenCate (pdf, 237 kb) is a leading multinational textiles company, whose core business is textile technology, ‘intelligent textiles’ and geotextiles. Since its establishment in the Netherlands in the 18th century, the company has successfully transformed itself from a traditional weaving and manufacturing company into a modern multinational company producing high value-added materials. Central priorities for the company are innovation and technology and upskilling of its employees. Key challenges for the future include global competition, pressure from low-wage countries in Asia and new demands for labour skills and competencies in the production process.
- Lithuanian company Utenos Trikotažas (pdf, 193 kb), the largest clothing manufacturer in the Baltic states, produces knitted jersey products and underwear for large clothing retailers. The company aims to focus on high-quality market segments, and eventually to present its own collection. Utenos Trikotažas has gained an important market share in eco-production, and adheres to a range of international quality standards. The company faces numerous challenges, such as the lack of skilled workers, global competition, regulatory demands, foreign currency fluctuations and rising energy prices. Strategic responses to these challenges include outsourcing labour-intensive activities and investing in skills development, attractive working conditions and new equipment and technologies to enhance performance and promote innovation.
Textile and clothing clusters – Denmark and Italy
A business cluster is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can compete, nationally and globally. The dossier looks at two clusters operating in the textiles and clothing sector, based in Denmark and Italy.
Herning-Ikast-Brande cluster, Denmark
The concentration of textiles and clothing companies in the Herning-Ikast-Brande area of Jutland in western Denmark is due to a long tradition of crafts in the region. In the 1980s, this concentration attracted many potential customers to the area. Since then, due to globalisation, these companies have relocated production activities to low-cost countries in Europe to remain competitive, but have retained the knowledge-intensive activities of the business such as design, fashion, logistics, sales and marketing. Today, the cluster comprises mainly large clothing companies and several small but highly-specialised textiles companies. Despite competition from the Copenhagen area, several key features make the cluster attractive in terms of location – access to know-how, a strong cluster brand and the good reputation of knowledge centres such as Teko. Good business practice has led to the survival and success of the cluster over the last century; however, innovation and new technologies are viewed as the way to address present and future challenges. Today, the cluster is experiencing increasing turnover, expanding exports and rising employment.
The Herning-Ikast-Brande cluster study (pdf, 204 kb) is available online.
Valle del Liri cluster, Italy
The Italian textiles and clothing sector plays a major role in the national economy. However, companies in the sector face increasing international competition. In the Liri Valley clothing area, for example, the effects of globalisation have resulted in company closures. Many of the existing enterprises are small-scale manufacturing companies working as subcontractors for large retailers and brands, which have the power to exert downward pressure on prices. The companies have responded to these challenges in a variety of ways, by establishing their own high-quality brands and entering national and regional niche markets, and/or providing fast and flexible manufacturing services to clients. Other strategic options include the offshoring of manufacturing tasks to countries in northern Africa and eastern Europe. While the region appears to be experiencing employment growth, the demand for unskilled workers in particular is declining, thereby implying a need for training. Strong business networks and innovation, combined with traditional skills, are important factors in developing the cluster.
The Valle del Liri cluster study (pdf, 192 kb) is available online.
- The research drew up four scenarios (pdf, 144 kb) that project the possible future development of the textiles and clothing sector. It shows possible opportunities, barriers and threats for the sector and the sustainable development of its workforce over a 10-year period. On the one hand, it develops exploratory scenarios for the macro drivers which influence the development of the textiles and clothing sector – macro drivers are understood as trends that only few companies or political actors can influence on their own. On the other hand, it presents the plausible implications of each scenario for the textiles and clothing sector in terms of business strategies, localisation choices, innovation, employment and skills demands.
- Scenario 1: Material girl This is a high-tech scenario, in which the textiles and clothing sector is moving into material sciences and research-intensive product areas. Due to a boom in the world economy, there are promising market opportunities for European companies which produce high-quality goods. Consumers are demanding products which provide new functionalities, such as sensors or materials that adapt to changing weather conditions.
- Scenario 2: Express yourself! The key words of this scenario are design and origin. Here, the textiles and clothing industry focuses on providing high-quality products and building up strong brands which cover a wide range of luxury products. The European economy is experiencing growth and as a result people can afford to splash out on expensive clothing and home interiors. As a result, the European home market for textiles and clothing is expanding and flourishing. Consumers are looking for products that reflect their identity and that help them to express their personality.
- Scenario 3: Stayin’ alive This is a crisis scenario, in which the industry mainly concentrates on reducing costs. The European economy is stagnating and as a result the demand for high-quality products is not high. Asian companies are introducing high-quality products designed by well-known European designers, hence posing a serious threat to European brands in these markets. Own-brand label products are to an increasing extent dominating the market, so that companies find themselves in a situation where they have to rely on winning contracts as subcontractors for larger retailers.
- Scenario 4: We are the world The final scenario, ‘We are the world’ is characterised by a focus on sustainability issues – both in terms of protecting the environment and global social responsibility. Due to the economic recession, consumers in Europe are not willing to pay for new products or high-quality brands. The market for high-tech and designer products is limited. As a result, companies in these market segments increasingly look to markets outside Europe for growth opportunities. However, the latest trend of people making their own clothes has resulted in an increased demand for yarns and textiles among individual consumers.
For companies in the European textiles and clothing sector, global developments such as the de-regulation of international trade in goods and services and the evolution of a global transport and communication infrastructure open up the possibility for companies to move their activities to locations that offer the best possible combination of benefits and costs to the company. A report (pdf, 117 kb) giving an overview of the factors influencing the location decisions of companies in the sector is available.
Further information sources
A number of other information sources regarding the textiles and clothing sector are available, including recently published works.