With Bulgaria poised to join the EU on 1 January 2007, the country is optimistic that its clothing exports will continue to climb. Production of textiles and clothing has doubled in the last five years, and the industry now believes it is well-placed as a quick response supplier of high quality orders. Niki Tait takes a look.

The apparel sector is of considerable importance to the Bulgarian economy, with overseas sales of textiles and clothing representing nearly 25% of Bulgaria's total foreign exports.

The value of total textile and clothing exports was EUR1.669bn (US$2.18bn) in 2005, with 86% of all textile and apparel production destined for export to the EU25.

Clothing production in Bulgaria has more than doubled in the past five years and it is currently Europe's most resilient apparel producer. In the first half of 2005 - just six months after the abolition of quotas on trade between World Trade Organisation members - Bulgaria had the third-highest growth in export value after China and India.

During this same period, production of clothing in the EU25 was down 9.3% from the same period a year earlier.

Bulgaria's textile and garment exports rose again during the first half of 2006, by 6.8% to almost EUR900m.

Textile exports increased by 14% between January and June 2006 to EUR148m, accounting for 16.8% of the total export value of textiles and apparel. During the first half of 2006, apparel exports rose by 5.5% compared to the same period of 2005.
Between 2004 and 2005, exports to Finland almost doubled, those to Poland increased by 31% and to Sweden by 18%. Germany is the leading export destination for Bulgaria's woven apparel production, while the main customer for knitted garments is Greece, taking 42.5% of the export total.
The main European markets for Bulgaria's textiles and clothing are Italy, Greece, Germany, France, Spain and the UK, with sales to Spain growing at 27% per year, to Italy at 22% and to Germany at 13%.
EU accession
Once it has joined the EU in January 2007, further increases in Bulgaria's textile and clothing exports are predicted for 2007 onwards. Customs delays and taxes will be eliminated, leading to faster deliveries and lower logistics costs. Corporate taxes and employers' social security responsibilities will also be reduced.
The country has a favourable geographic position in terms of market access to the EU and proximity to the main suppliers of quality textile fabrics and yarn from Italy and Turkey. The industry has comparatively good language and computer skills, and the Bulgarian Leva (BGN) has been pegged to the Euro for some time.
Bulgarian imports of textiles and apparel came to EUR1.358bn in 2005, giving the country a positive balance in foreign trade in textile goods of EUR311m. Nearly three-quarters of these imports consisted of textile raw materials, fabrics and accessories destined for export CM and CMT production.

Most textile imports come from EU member states, as well as neighbouring Turkey. China's shipments to Bulgaria have grown from 3% to 4%, with about half of these consisting of knitted and woven apparel, and the other half mainly textile raw materials and fabrics.
Around 177,000 people, or 31% of all those employed in Bulgaria's manufacturing industry, work within the country's 2,000 textiles and clothing companies.

81% of these employees work in the clothing sector, mostly in the production of woven apparel. Estimates suggest up to 95% of employees work in small to medium sized enterprises with up to 250 people.

CMT contracts dominate
Between 80% and 90% of production is made as export CM or CMT contracts, with most companies being dependent on just one or two foreign customers.

However, with design input coming from the customer in different forms of CM production, Bulgarian manufacturers have limited opportunities to add value and are vulnerable to price based competition. This makes the sector dependent on Bulgaria's low labour costs at a time when entry into the EU is likely to see wages rise.

The annual turnover of most companies does not exceed BGN2m, with only a few companies having a turnover of more than BGN10m.

It is difficult for many producers to fund the necessary raw materials for large contracts of full garment production since banks don't seem to understand the short term capital needs of manufacturers.
The average gross monthly wages in Bulgaria in 2005 equated to EUR165, one of the lowest levels in Europe and its surrounding countries. In clothing and textiles wages are even lower, averaging EUR115.

In a recent international comparison of garment subcontracting costs, the labour cost per minute in Bulgaria ranks lower than all EU countries. Wage levels are below Albania, Romania, Sri Lanka, Indonesia and Russia, on a par with Bosnia, Egypt, Mexico, Eastern China and the Ukraine, and only marginally ahead of Belarus, Serbia and Montenegro.
Overall labour productivity remains quite low in Bulgaria, although apparel productivity is growing due to investment in new equipment and technology.

Foreign investment
Although Bulgaria is not normally thought of as a major knitwear manufacturing country, there are several very large fully fashioned companies employing between 1,000 and 1,500 employees using excellent technology.

Over the last five years, Shima Seiki, for example, has sold around 300 fully computerised compact machines into the country. Investment, however, is still very much needed throughout the textile and apparel industry.
Foreign direct investment into Bulgaria between 1998 and 2004 amounted to US$6.6bn, with investments in the textile and apparel sector coming in at US$316m, or around 4.5% the total.

This relatively low figure is due to the comparatively low investment needed to start apparel production.

Major foreign companies have put substantial funds into the local production of textile fabrics and raw materials and are still continuing to reinvest profits and set up additional green field investments in order to increase capacity.

The investment mainly comes from a few big companies such as Miroglio Group (Italy), Rollmann and Partners (Germany), Bulsafil (Italy), ADF (France), Vesticonfex (Portugal), Mazer Holding (Turkey) and Demo Bulgaria (Greece).
The former chairman of the Bulgarian Association of Apparel and Textile Producers and Exporters, Mr Petko Shishkov, believes the textile and clothing industry has a bright future: "Producing in Bulgaria has many advantages. These include quick response via fast delivery, competitive prices relative to the region, high quality, flexibility for both large and small orders, a highly skilled labour force and consistent reliability.

He adds that while European retailers will import the majority of their large order, commodity clothing runs from China in the future in order to remain competitive, they will also need to source closer to home to respond to unforeseen fluctuations in demand.

"Bulgaria is Europe's quick response solution for high quality, small orders that need to be there yesterday. Bulgarian firms are rapidly developing the internal capabilities to manage all aspects of their supply chains to European partners, including sourcing, design, transport/logistics and own branding, combined with Bulgaria's strategically favourable location."

Niki Tait, C.Text FTI, FCFI heads Apparel Solutions, which provides independent assistance to the apparel industry in the areas of manufacturing methods, industrial engineering, information technology, and quick response.