Croatia clothing sector could exploit EU accession
Croatia is set to become the 28th member state of the European Union on 1 July 2013
Croatia is set to become the 28th member state of the European Union on 1 July 2013 - a move that offers greater access to EU customers for its textiles and clothing. But there are risks, and the Croatian sector could be in better shape, as Mark Rowe reports.
EU accession will lead to the removal of all trade red tape for Croatian exports to the EU, as well as making it easier to strike deals and forge joint ventures with companies based in EU counties.
Membership means that Croatia will have adopted all EU technical rules on clothing labelling and analysis, also easing exports.
Textile and clothing products make up 8.2% of Croatia's exported industrial goods and also account for 5% of Croatia's overall imports from the EU's 27 member states.
According to Dr Mirjana Gambiroza Jukic, business secretary of the Association of the Textile and Clothing Industry of the Croatian Chamber of Economy, foreign investors are attracted by the country's cheap labour costs - wages are anything from 30% to 70% lower than in nearby Italy.
In addition the government is pushing regional development by subsidising up to 20% of the cost of start-up businesses in counties where unemployment is higher than 20%.
This dovetails with a trend among Croatian textile factories to relocate manufacturing to poorer communities in the country's regional cities and towns, where an affordable workforce is available - though Ms Gambiroza notes many companies are increasingly commissioning sewing production in neighbouring countries with even cheaper labour forces, such as Bosnia-Herzegovina.
Seeking new markets
As it stands, Croatia's 757 textile manufacturers are overwhelmingly independent (714 small companies, 37 medium-sized and only six large companies). In recent years, many firms have moved to sell goods from their own factory stores and outlets, as well as investing in distribution to third party retailers.
Some companies, such as Galeb, a clothing manufacturer based on the Dalmatian coast at Omis, near Split, welcome accession with ambitions to secure new markets.
"We don't have target countries," says Stjepan Pezo, general director of Galeb. But, he adds, as a "vertically integrated company", Galeb is in good shape to choose EU markets with good potential for export sales.
As of April 2012, Croatia's textile and clothing producers employed around 20,000 people - 75% specialising in clothing - a drop from a high of 83,000 in the 1990s.
"The industry has two main goals ahead of [EU] accession," says Dr Jukic. "To change production structures according to higher quality price brackets and to improve business operations and apply innovations and knowledge.
"The textile and apparel industry faces difficulties in marketing its products to the domestic market. Only companies which have made substantial investments and already modernised their manufacturing technology have good prospects."
And the latest statistics do not make encouraging reading, given EU accession - and hence more competition - is pending.
The industry's fortunes have plummeted in recent years, with textile manufacturing output dropping by 11% in 2011, compared with 2010, according to Croatia's Central Bureau of Statistics, when the industry was collectively worth EUR648m (US$794m).
It has also faced increasing pressure from cheap Chinese textile imports. In the face of this, production wages have been slightly depressed, dropping from an average monthly salary of EUR598 in 2010 to EUR589 in 2012.
And recent years have seen also a series of blows - on the retail and apparel production side.
For instance, in 2010 the luxury Italian fashion brand Dolce & Gabbana's Zagreb store closed after just two years.
Meanwhile, manufacturing redundancies have been commonplace. In January this year, 147 workers from Trimot, a textile factory in Imotski, Dalmatia, were dismissed after the company went bankrupt. Last year former employees of Kamensko, a Zagreb-based textile firm, protested that they had yet to receive severance payments and outstanding wages after the company also went bankrupt. Some workers briefly went on hunger strike.
Despite this, overseas competitors have shown they can thrive in Croatia.
It is currently dominated by three international players. Italian hosiery and beachwear company Calzedonia has manufacturing bases in Croatia and is selling to Croatians through its Intimissimi and Tezenis brands stores, along with a recently launched cash-and-carry brand outlet.
Austria-based Boxmark, which specialises in car seat upholstery, has set up a manufacturing base in the country and, with exports worth around EUR135m a year, is Croatia's fourth largest exporter.
And Italy's Benetton employs 500 workers directly in Croatia, in retail and production.
That said, Pezo believes any moves by EU companies into Croatia will be incremental. "If you look at the companies in Poland, Czech Republic, Hungary, they still have capacity," he says. "It will be two or three years before you see any major moves."
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