Textination Newsline

• Rethinking in traditional industry

Italy's shoe and shoe technology manufacturers are losing market share in important markets and want to make their production more efficient and digital. German companies score points in niches.

Even though 9 out of 10 shoes today come from Asia, Europe's largest shoe producer Italy still ranks among the top ten of the world's largest shoe producers and is the undisputed market leader in the luxury segment. Nevertheless, sales in terms of volume at home and abroad are falling and so is production. At the moment, the sector can only secure its turnover through higher prices.

The decline in export demand, which accounts for around 85 percent of Italian footwear, is particularly painful. According to the sector association Assocalzaturifici, international sales fell by around 4 million pairs between January and October 2018. Only an average price increase of 6.4 percent enabled a year-on-year increase. On the German sales market, sales of Italian shoes also stagnated at around EUR 1 billion, while German shoe exports to Italy, with a plus of 34.5 percent to around EUR 485 million, achieved one of the highest growth rates in German trade with Italy.

Orders received by the Italian footwear industry in the fourth quarter of 2018 declined both domestic (-2.5 percent) and abroad (-0.9 percent). The only market segment that is still growing in Italy itself are sports shoes/sneakers. According to experts, the falling number of units drives manufacturers to find solutions that help to reduce production costs.

Opportunities for Germans in Digital Change and in niches
In the shoe and leather technology domestic manufacturers dominate. Assomac, the Association for Shoe and Leather Technology, estimates, that in 2018 the approximately 240 Italian companies in the sector achieved a turnover of around EUR 760 million. By contrast, exports of shoe and leather machinery, which account for around three quarters of the sector sales, fell by around 6.2 percent in 2018. Italy is by far the most important exporter of leather and shoe technology in the world. In 2018, shoe and leather machinery worth of around EUR 439 billion went abroad, particularly to China, Vietnam and India.

German deliveries of shoe and leather technology to Italy are at a low level and, according to the VDMA trade association Textile Care, Fabric and Leather Technologies, reached around EUR 4 million in 2018. Italy thus ranked fourth behind China, the USA and Mexico in terms of export destinations. With foreign deliveries of around EUR 50 million per year, Germany is the world's fifth largest exporter.

Market experts see opportunities for German companies in Italy with components that help domestic companies in international competition, for example the use of intelligent and networking machines. Despite their great competence, Italian manufacturers are very traditional and are struggling with the digital changes. But industry experts report that the companies are rethinking and interested in new solutions.
"We support our Italian customers in installing more software solutions for sewing machines and in networking machines," says Sebastian Feges, sales engineer at the Schwetzingen-based company EFKA, one of the last German companies in the sewing industry.  EFKA supplies Italian shoe and leather machine manufacturers with sewing drive controls. The company scores particularly well in areas where maximum precision is essential and every wrong stitch leads to expensive scrap, such as leather seats for Ferrari. According to Feges, money for investments in Italy is not easy to get at the moment. However, he sees an interesting perspective in the promotion of the Italian government for the purchase of industry 4.0 equipment and software, the so-called Iperammortamento, which is not yet sufficiently known.

Further opportunities exist in niches that are gaining in importance due to current industry trends such as digital printing on leather. The machines of Hansa Mixer from Bremen produce foam for textile and digital printing and the sealing of leather hides. "We offer a niche product that can be used anywhere," General Sales Manager Achim Schmidt says. In addition to the shoe and leather industry, Hansa Mixer also supplies food manufacturers such as Ferrero. "Italy is an interesting market for us and we expect good orders."

Another industry trend is greater sustainability, especially in the often-criticized leather industry. Assomac is expressly committed to this goal and has – next to other thing - introduced the new Targa Verde certificate.

Sources: Assocalzaturifici, Instat

The Italian footwear industry consists of about 4,700 companies with about 77,000 employees. According to the industry association Assocalzaturifici, sector sales in 2017 amounted to about EUR 14.2 billion. Industry clusters are the regions of Venice, Tuscany, Marche, Lombardy, Campania, Apulia and Emilia Romagna. The cluster in Brento, Veneto produces about 11 percent of the national output. Also International manufacturers such as LVMH and Louis Vuitton are investing and producing in Italy.

• Exports rise in the country's most important industrial sector.

Phnom Penh (GTAI) - Cambodia's clothing exports are growing steadily. However, two factors cloud the prospects for the future.

Cambodia's garment industry is the backbone of the Kingdom's export-oriented economy. Industry exports account for around 40 percent of the gross domestic product (GDP). More than 800,000 Cambodians are employed in over 800 companies. That is more than 85 percent of all factory workers in the country.

Apparel and footwear exports reached USD 8.0 billion in 2017, according to Cambodian customs. This represented an increase of 9.6 percent compared with 2016. Proud growth rates between 7 and almost 15 percent were already achieved in previous years. GTAI estimates on the basis of partner countries' imports an even higher export volume of around USD 12 billion.

More than 70 percent of the country's total exports of goods regularly come from the sector. Shoes accounted for exports of USD 873 million (+14.4 percent) in 2017. Foreign business with shoes has been improving for some years now and has been able to increase its share of exports to over 10 percent. With an unchanged share of 46 percent compared to the previous year, the EU continued to play a major role among the customers in 2017, followed by the USA with 24 percent.

The value-added volume of the sector is low and the road to an integrated textile industry in Cambodia is still long. Machines, raw materials and design come from abroad in the form of a CMT model ("Cut Make Trim"). Fabrics, yarns and haberdashery have to be imported in order to keep the local clothing industry "on the runway". In 2016, according to the United Nations Comtrade Database, USD 4.1 billion worth of textiles came into the country for processing - about 60 percent of which came from China. Textile imports have risen proportionally to clothing exports in recent years.

The garment industry is dominated by foreign companies, mostly from the Asian neighborhood China, Hong Kong (SVR), Singapore, Malaysia or South Korea. Many manufacturers produce to order for multinational brands such as Adidas, Puma, Gap, H&M, Marks & Spencer or Uniqlo. In principle, the complete contract manufacturing is intended for export.

Rising wages fuel fear of competition
After years of growth the sector is looking to the future with concern. The country is increasingly in danger of losing market share to its competitors - for example in Myanmar, Vietnam or Bangladesh - primarily due to rising wage costs. In January 2018, the monthly minimum wage for workers was raised to USD 170, up from USD 153. Compared to 2013, when a minimum of USD 80 was required by law, there has now been more than a doubling.

The annual agenda included regular increases of around 10 percent. According to the Cambodia Garment and Footwear Sector Bulletin of the International Labor Organization (ILO), workers who worked the full month, including overtime payments and incentives, were paid an average wage of just under USD 243 in 2017. Last year, it was USD 225.

In the past, low wages were mainly responsible for the attractiveness and competitiveness of Cambodian industry. This advantage is crumbling year after year as a result of the increase of minimum wages. An end to this politically motivated development is not in sight. The government can imagine, referring to expert recommendations, that minimum wages will be raised to USD 250 per month by 2023.

If the trend continues, companies are likely to migrate and not too many new investors will pitch their tents in Cambodia, critics warn. In 2017, sector companies invested nearly USD 270 million in 55 projects. This represented 5 per cent of the Kingdom's total investments. In the previous year, this share had been 9 percent.

Industry representatives complain that the costs grow faster than the productivity. Automation of production processes is becoming more and more urgent in order to keep up with productivity. However, both the lack of skilled workers and an infrastructure in need of improvement are serious bottleneck factors. There are also critics who are generally pessimistic about a possible automation in the sector. Cambodia could only score points through low labor cost advantages. Automated mass production is reserved for countries that have a reliable and cost-effective power supply and are closer to the sales markets.

Will the trade routes to the EU remain free?
Even more worrying would be the EU's cancellation of the preferential trading system EBA ("Everything But Arms"). Finally, the exemption of Cambodian clothing from customs duties is at stake on the main market. A discontinuation is likely to trigger a wave of migration of the clothing industry. Quite a few companies have taken the EBA initiative alone as an opportunity to establish themselves in the Kingdom.

In addition, the view wanders across the border to Vietnam. Manufacturers there could soon benefit from a free trade agreement with the EU. Vietnam is also participating at the Asia-Pacific Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP), while Cambodia remains outside. If the trade arrangements remain unchanged, Cambodia may get off with a black eye. However, the other factors should not be ignored. Transport and general export costs are also considered comparatively high compared with Vietnam or China.

Cambodian exporters are currently benefiting from the trade dispute between the USA and China. The National Bank of Cambodia (NBC) semi-annual report supports this assumption. According to the study, apparel and footwear exports rose by 11 percent in the first six months of 2018 compared to the same period of last year to reach a volume of USD 4 billion. Since July 2016, clothing, shoes and travel goods (suitcases, bags, etc.) can be delivered duty-free to the USA. According to the Garment Manufacturers Association of Cambodia (GMAC), shipments of travel goods to the USA in the first half of 2018 reached an amount of around USD 160 million - three times the previous annual exports.

Cambodia's imports of textile machinery amounted to USD 127.3 million (SITC 724) in 2017 according to the UN Comtrade database. This was 11.4 percent more than in the previous year. About 60 percent of the capital goods came from China; the remaining deliveries are relatively evenly distributed among other Asian countries. German deliveries only appear very sparsely in the statistics. Used machines from abroad are more likely to be in demand, but are not recorded statistically.

• Almost 1 in 3 pieces of furniture is exported
• 14% of furniture sales now online

At the European press conference in September 2018 in Madrid for imm co-logne/LivingKitchen 2019, Jan Kurth, Chief Executive of the Association of the German Furniture Industry (VDM), reported on the state of business in the sector:

At the end of an exceptionally hot summer, which has driven consumers to outdoor pools and beer gardens rather than furniture showrooms, the German furniture industry looks back on correspondingly subdued growth in the sector. Following a decline in sales in the second half of 2017, the business climate for manufacturers did improve slightly in the first half of 2018, but the bottom line is that furniture sales have stalled, especially within Germany. While the year began distinctly positively on the back of imm cologne, a significant slowdown in business subsequently set in.
From January to June, sales in the sector reached approximately Euro 9.1 billion, just 1 per cent higher than in the same period of the previous year. Following a 0.7 per cent fall in sales for 2017 as a whole, marked in particular by a negative trend in the second half-year (–1.6%), German furniture manufacturers were thus able to generate slight sales growth, but the situation remains disappointing.

Growth stimulus comes from abroad
This marginal increase in sales was exclusively attributable to international business, since sales outside Germany grew in the first six months by 2.7 per cent in comparison with the same period of the previous year. Domestic sales, on the other hand, stagnated with a minimal rise of 0.3 per cent. Export business benefitted from revived demand in key European sales markets and, increasingly, from the positive economic development in the major growth regions outside the EU. Almost one third of German furniture exports are now sold to non-EU countries.

Results of the latest VDM survey
In summer 2018, the VDM conducted a survey of the economic situation faced by companies in the sector. Participants rated the current business climate as satisfactory (34%) to poor (40%), with only 26 per cent judging it to be good. Compared with summer 2017, the situation for business had worsened in the view of 51 per cent of those surveyed.

State of export business better than domestic market
The disparity between the domestic market and export business is also reflected in the business survey. While most respondents (57%) judged the situation for domestic business as poor, an overwhelming number of manufacturers considered the situation for export business to be good (29%) to satisfactory (56%).

The current difficulties in domestic demand are largely confirmed by the furniture retail sector. Naturally, the long period of high temperatures moved many activities outdoors, but still this explanation falls short. To discover a little more about this, the VDM commissioned a representative study from the prestigious market research institute Kantar TNS, which put the furniture buying behaviour of Germans under the microscope. We were particularly interested to learn where people seek information about furniture and where they buy it. Do they look at advertising supplements in daily newspapers or rather retailers’ websites? Are people increasingly buying furniture online, or is the official sales channel statistic correct, which has been citing an almost stable figure of between 7 and 8 per cent for several years?

Customers increasingly seek information online
First, a look at the information sources. Overall, the furniture store itself – that is to say, looking at furniture in person – remains the most important source of information (68%), followed by brochures from furniture showrooms (54%). But 48 per cent of all those surveyed now use the Internet as a source of information and inspiration. In the younger target groups (<40 years old), the significance of the information source sees a clear shift, with the Internet dominating (77%) but furniture stores still being used by 63 per cent.

When it comes to formal educational attainment, there is a clear correlation with the information sources used. Those with a lower level of education favour brochures and advertising from furniture stores. The higher the level of education, the more buyers actively seek information online.

80% have bought large furniture items in the past 5 years
Online shopping or a trip to the shops? Generally speaking, over 80 per cent of Germans have bought relatively large items of furniture in the past five years. As can be expected, this proportion tails off with increasing age. Of those who bought furniture, 75 per cent carried out this latest transaction in a furniture store. Just under 10 per cent of shoppers bought from a purely online retailer and only 4 per cent purchased via the website of a furniture retailer. This gives a 14 per cent share of sales now taking place online and thus double the figure given out by the official sales channel statistics. In terms of online shoppers, people living alone and the under-30s lead by a clear margin. As young people get older, they are unlikely to move away from online shopping for furniture, and new “Internet savvy” consumers enter the market, the “normality threshold” for the remaining age groups is also expected to fall. There is therefore clearly still a great deal of potential for online furniture sales, and the industry and trade would be well advised to exploit this potential through engaging concepts and information suited to the target groups, moving away from discount and clearance promotions.

Additional online potential
We also see the growth of online business as offering opportunities for the furniture sector as a whole. Firstly, the fixation on prices and discounts is not as pronounced online as in highly concentrated bricks-and-mortar retail. Secondly, the short delivery times and short-notice availability typical of online trading tend to be served more flexibly from internal German sources than from Asia.

Official assessment: sales in the individual segments
According to official statistics, the individual segments in the German furniture industry developed unevenly between January and June 2018. Kitchen furniture manufacturers recorded sales growth of 4 per cent to around Euro 2.5 billion. The office furniture industry reported a distinctly positive result with sales of around Euro 1.1 billion (+7.9%). Manufacturers of shop and contract furniture saw a year-on-year increase of 7.2 per cent and generated sales of around Euro 920 million.

Manufacturers of upholstered furniture registered a noticeable decline, with sales falling by 5.3 per cent to around Euro 480 million from January to June 2018. With a drop of 1.6 per cent to Euro 3.7 billion, the sales performance in household furniture, other furniture and furniture parts was also more negative than the industry average. The smallest segment in the industry – mattresses – recorded the most significant decline in sales of 12.8 per cent to Euro 400 million. This must, however, be put in the context of the above-average growth in sales in this segment in recent years.

Furniture industry generates new jobs
We now take a look at the employment figures for the industry. The 482 businesses currently operating with more than 50 staff (–2.2%) employ 84,300 men and women, which is slightly above (+0.7%) the previous year’s level. Approximately 600 new jobs have been created in the industry in the last year, despite the difficult market conditions.

Compared with the same period of the previous year, German furniture exports in the first half of 2018 grew by 2.2 per cent to Euro 5.5 billion. With an increase of 1.2 per cent, sales to EU countries only crept slightly above the previous year’s level, thus developing much more sluggishly than exports as a whole. Having said this, exports to the German furniture industry’s largest external market, France, achieved growth of 3.5 per cent, and the Dutch (+6.2%), Polish (+10%) and Spanish (+6.1%) markets also saw positive developments from the perspective of the German furniture industry. However, furniture exports to the important sales markets of Austria (–1.3%) and Switzerland (–3.8%) declined.

Negative trend in Great Britain
The furniture industry also clearly felt the negative effects of the Brexit negotiations and the fall in the pound over the course of the previous year, with furniture exports to Great Britain contracting by 8.9 per cent in the first half of 2018. No other major export market performed as badly as the United Kingdom from the perspective of German furniture manufacturers.

Boom in exports to the USA, China and Russia
The key growth markets for German furniture now lie outside the EU. The outstanding performance of German furniture manufacturers in the largest growth markets of the USA (+9.5%), China (+25.9%) and Russia (+14%) is particularly noteworthy. Given the size of each of these markets and the strong demand for high-quality furniture, these figures are sure to see further growth. Other markets outside Europe, such as Canada, Mexico, Japan, South Korea and Singapore, are currently developing well, although exports to these countries are still at a relatively low level. Overall, the non-EU market is expected to become an important driver for growth for the German furniture industry in the years ahead.

Export ratio up by 32.6%
The industry’s export ratio – that is to say, the proportion of goods shipped directly abroad by domestic furniture manufacturers against total sales by the industry – climbed to 32.6 per cent in the first half of 2018, thereby achieving a new record. The corresponding figure for the first half of 2017 reached 32.1 per cent. This means that the furniture industry’s export ratio has doubled since the turn of the millennium.

Furniture “made in Germany” highly regarded
The success of German furniture manufacturers abroad can be put down to the quality, reliability of supply, design and individuality of our products. German manufacturers often have a better grip on processes and logistics than their international competitors. These are important selling points for consumers – whether they be in Shanghai, St Petersburg or San Francisco.

Greater support for exporters
In view of the increasing importance of exports for the industry, the VDM will be expanding the support it offers exporting companies. A new VDM Export working group aims to encourage dialogue between individual manufacturers, identify the main markets and coordinate export and trade fair activities for the industry as a whole. Information days and workshops for furniture manufacturers will be organised to share industry-specific expertise relating to the individual export markets. Practical tools will also be made available to support the successful involvement of German furniture manufacturers abroad. These additional export activities are intended to help German furniture manufacturers to grow their market share on the world market.

Slight increase in imports
Import competition remains strong: after German furniture imports achieved growth of 0.8 per cent to Euro 12.7 billion for 2017 as a whole, in the first half of 2018 they rose by a further 0.6 per cent to Euro 6.6 billion. However, the trade deficit reduced by 8.1 per cent to around Euro 1.2 billion in the same period as a result of substantially increased exports. Overall, furniture imports to Germany from eastern Europe are increasingly gaining ground from their Asian competitors. Poland enjoyed growth of 7.4 per cent and, as has been the case for a number of years, remained by far the largest source country in terms of furniture volume. Nowadays, more than one in four pieces of furniture (26.3%) imported into Germany originates from our neighbour to the east. The Czech Republic remains the third-largest source of imports with a slight rise of 0.7 per cent. Altogether, imports from EU countries achieved a significant increase of 1.8 per cent. By contrast, imports from Asia fell disproportionately (–5.9%), especially from Vietnam (–12.3%), Taiwan (–13.9%) and Indonesia (–9.8%). Imports from the second-largest originating country, China, declined significantly with a drop of 5.2 per cent. The structure of German furniture imports is highly concentrated, with around 56 per cent of all German furniture imports now attributable solely to the three largest supplier countries: Poland, China and the Czech Republic.

56% of all imports from Poland, China and the Czech Republic
Almost two thirds of participants in the VDM survey expect the business outlook to remain the same in the six months ahead. 24 per cent anticipate an improvement in the situation and just 12 per cent a worsening. According to the assessment of the respondents, the major factors affecting the trading climate in the next six months will be increasing prices of raw materials (33% of respondents), a shortage of skilled personnel (27%), growing pressure from imports (18%) and increasingly protectionist trade policies (9%).

Rising material costs hit the industry hard
The rising cost of materials as regards solid wood are seen as a particular obstacle for development in the sector. Companies in the German furniture industry taking part in the survey report an average increase of 9 per cent in the cost of solid wood when compared with summer 2017. Prices of wood-based materials increased by 5 per cent in the same period, with logistics costs also up by 5 per cent and staffing costs by 3 per cent. Given the market power of purchasing associations, it is not possible to pass on this rise in costs in full to the German furniture retail trade.

Forecast for the current year: +1%
While the contribution of foreign markets to German furniture industry sales is expected to remain positive in the second half-year, in view of the very significant growth in recent times, there are clouds on the horizon as far as domestic trade is concerned. Consumer confidence in Germany is also on the wane. Economic forecasts for this year have recently been revised downwards by leading economists. On this basis, we continue to anticipate sales growth at the end of the year by around 1 per cent in 2018.

• Clothing exports are declining 

New Delhi (GTAI) - Structural weaknesses and fiscal reforms are affecting the Indian textile industry. Modernization and diversification are necessary. For this where support measures will come into force.

In the 2016/17 fiscal year (April 1st to March 31st), India's government initiated a number of fundamental reforms such as the introduction of the nationwide Goods and Services Tax (GST) and a partial currency devaluation. These measures are intended to advance the economy as a whole in the medium to long term, but have led to uncertainty and difficulties in individual sectors, including the textile industry. Added to this are high cotton prices. The government is now trying to help the industry with individual measures. It remains to be seen whether these will be sufficient and lead to a sustained improvement. Finally, there are structural weaknesses which are also slowing down the growth of the Industry.

"The by the introduction of GST caused dent and monetary depreciation has now been overcome. However, the structural problems remain, so that no fundamental changes in the textile industry are to be expected", according to the assessment of a German supplier with many years of experience in India in talks with Germany Trade & Invest (GTAI).

Government launches aid measures
However, some government measures should provide relief. At the beginning of August 2018, import duties on 328 textile products, especially fabrics and nonwovens, were increased from around 5 to 10 percent to up to 20 percent. Also, at the beginning of the month, the Executive Board introduced four bills to amend the general VAT Act introduced on July 1st 2017. This should make refunds, for example of taxes on intermediate products, easier and faster. The introduction of GST and the delays in reimbursement have put particular pressure on the liquidity of small and medium-sized companies, which make up the bulk of textile companies. For example, the denim industry temporarily had to take 25 to 30 percent of its capacity out of production after the tax introduction.

 Also, the Ministry of Textiles wants to strengthen the to it entrusted weakening industry. At the beginning of August 2018, for example, it added changes to the Technology Upgradation Funds Scheme (TUFS), which has been in existence since 1999. This now expanded technology promotion program allows cooperative banks to provide financing to textile companies for technological improvements. They also become accessible for liability partnerships. Of the approximately USD 1.1 billion, that the central government budget is holding for the textile industry in the fiscal year 2018/19, one third, 14 percent more than in the previous year, are intended for the TUFS. Manufacturers of synthetic fibers and the clothing industry in particular are likely to benefit from this, according to industry sources.

The existence of an own Ministry of Textiles shows how important this industry is for India, not only as a source of foreign exchange, but also as an employer. The entire sector, from spinning mills, weaving mills to clothing and other finished goods, contributed around 14 percent to value creation in the manufacturing industry and 13 percent to foreign exchange revenues in 2017, and employs directly 40 million and indirectly 60 million workers.

As one of the world's leading producers of cotton, jute and silk, India has comparative advantages in the textile sector and can look back on a long tradition in processing. Accordingly, cotton is the main raw material in yarn and fabric production. After all, 5.7 billion tons of yarn were spun in 2016/17, achieving an annual average increase of 3.1 percent between 2011 and 2017. The weaving mills processed 63.5 billion square meters of fabric in 2016/17, after 61.7 billion in 2011. The proportion of cotton fabrics rose from 51 to 61 percent in 2011 to 2017. The remaining part is accounted for approximately equally by synthetic and blended fabrics.

 
Production and export growth come to a halt Based on the previously strong growth the government is optimistic. According to forecasts by the Ministry of Textile, India's textile and clothing industry is expected to more than double its sales between 2015 and 2021. Exports are expected to increase from USD 35 billion to USD 82 billion, after doubling in the period from 2006 to 2014 from USD 17.6 billion to USD 37.6 billion. After that, however, they stagnated and, at USD 35 billion in 2017/18 and missed the by the government set target by USD 10 billion. The production of textiles and clothing declined from 2015 to 2017. It is unlikely to improve in 2018.

¹⁾ Financial years from 1 April to 31 March; ²⁾ Provisional data for 2016/17 and 2017/18
Source: Statistical Office India
     

Clothing industry needs to modernize 
India's textile industry has cost advantages over industrialized countries and advanced emerging countries such as China. Smaller developing countries, however, have become well-known competitors in the meantime and have partly surpassed India in terms of clothing. So Bangladesh and Vietnam exported more clothing than India. In addition there is growing competition from other low-wage countries such as Cambodia, Sri Lanka and Indonesia. Some of these countries have free trade agreements with the EU, while India has difficulties in negotiating them. The smaller competitors have also geared their clothing industry to exports and modernized it accordingly. After all, they do not have significant local markets. The Indian textile manufacturers are different: If there is not enough quality for export, the domestic market, which has a population of 1.3 billion inhabitants and is growing strongly, is still there, industry representatives explain to GTAI.

India's apparel industry therefore still has a considerable potential for modernization and requires new production technologies, particularly to improve operating efficiency. Other structural weaknesses include strong wage increases with insufficient productivity growth and a shortage of well-trained skilled workers. Other disadvantages are the fragmentation of the clothing industry - many companies lack size - and the lack of adaptation to global fashion trends. While the fashion world is more prone to fiber mixed fabrics, the Indian clothing is not yet following this trend. There is a lack of product diversification.

The spinning and weaving sector looks more modern. Industry experts attest to it a leading international position in terms of size, technology, productivity, quality and price. This is also evident when importing machines. India was the most important export market for German spinning machines to China in 2017 and the fifth largest market for weaving machines, according to the Textile Machinery Association of the German Engineering Federation (VDMA). In textile finishing machinery, India does not rank among the top six export markets, but its competitor Bangladesh does.

Double-digit growth in foreign direct Investment 
Foreign investments in the Indian textile industry are welcome and 100 percent foundations by foreign companies are welcome. On promotional trips to countries such as Japan, Germany, Italy and France, India is actively attracting investors and has not been unsuccessful. The inflow of foreign direct investment into the textile sector, including dyed and printed textiles, amounted to USD 2.7 billion between April 2000 and September 2017. Cumulative investments increased by an annual average of 17.3 percent between 2010 and 2017. However, the bulk of the investment is being stemmed by national Indians. Total investments in India's textile sector from June 2017 to May 2018 amounted to USD 4.2 Billion.

Every day, GTAI experts observe and analyze the development of the most important German export industries on the world markets. Here you will find summarized information on the textile and clothing industry in Asian markets.
 
GTAI Industry Check - Vietnam
Textile and clothing industry: Vietnam needs more than sewing
The textile and clothing industry is one of the most important pillars of the Vietnamese industry and accounted for around 6 percent of total exports in 2017 with exports amounting to USD 26 billion. For 2018, the industry is aiming for growth of 7 to 8 percent and exports are expected to rise to over USD 33 billion. In order to comply with the rules of origin of the free trade agreements concluded by Vietnam, the country must achieve a higher added value. Domestic companies such as the Vinatex Group or Garco10, but also foreign companies are increasingly investing in technical innovations and expanding processes such as spinning, weaving and dyeing upstream of pure sewing. In addition, the first companies are beginning to automate their production processes.

GTAI Industry Check - Uzbekistan
Textile and clothing industry: Investments of more than USD 2 billion planned
The industry program for 2017 to 2020 lists around 130 projects with a total value of USD 2 billion. About half of the planned investments are to be
accounted for foreign commitments. The aim is to double the annual output of finished textile products during this period. With an annual production of more than 3 million tons of raw cotton, Uzbekistan is one of the world's largest producers of the white gold. A second industry programme foresees the implementation of five projects for the production of raw silk, silk wadding and silk fabrics and finished silk products between 2018 and 2021. The minimum investments required are estimated at USD 26 million.
 
GTAI Industry Check – Myanmar
Textile and clothing industry: Export strength through low wages
The lifting of sanctions by the EU and the US has noticeably revived the investment climate in the sector, especially as this was linked to the reactivation of the EU's GSP import status (Generalized System of Preferences). Most investors came from China, Hong Kong, Taiwan or South Korea, and Western brands such as GAP, H & M, Primark or Marks & Spencer were also included. Currently, about 400,000 workers are employed in almost 400 factories, mostly geared to CMP (cut-make-pack), including 171 foreign investors and 22 joint ventures. According to the Myanmar Garment Entrepreneurs Association, exports are expected to have increased by 40 percent to over USD 3 billion by 2017. For the first time the largest customer was the European Union, primarily Germany, ahead of Japan and South Korea.

GTAI Industry Check – Georgian Republic
Textile and clothing industry: Several expansion projects planned
The apparel industry produces garments for up to USD 70 million annually. The main products manufactured are international brands for export. Several new projects in the industry are in preparation. For example, the Turkish jeans manufacturer Baykanlar Textil plans to build a factory for the production of brand jeans in Ozurgeti by the end of 2018. A total of USD 15 million will be invested in the project. The Romanian company MGMtex, a subsidiary of the Swiss company Ottorose, is planning to start production of branded clothing in Kutaisi in cooperation with a local partner. The investments for the first and second project phases amount to more than USD 1.5 million. For the procurement of equipment, the company benefits from subsidies from the state program Produce in Georgia.

GTAI Industry Check - Turkmenistan
Textile and Clothing Industry: Investments of around 300 million US dollars planned
The textile and clothing industry represents 20 percent of Turkmenistan's industrial production and 30 percent of its manufacturing industry. A good USD 300 million will be invested in 2018 to 2020/21. The project list includes the construction of a large textile complex for the annual processing of up to 5,000 tons of fine-fibred cotton into semi-finished and finished products. Start March 2021; contractor: Cotam Enterprises Ltd, British Virgin Islands/Turkey) and a factory for the annual production of 6,000 tons of cotton yarn (2019/20, Hilli yol), the modernization of a textile factory (Daschogus), a cotton spinning mill (Tachtabasar) and a factory for medical wadding and cosmetic cotton (Ashgabat; 2018/2019 each). The potential of medical textiles, cotton fabrics, man-made fibers and the processing of wool and cocoons is still little used.
 
GTAI Industry Check – Azerbaijan
Textile and clothing industry: Light industry business park attracts investors
Azerbaijan launched several projects to revive the industry (output in 2017: USD 100 million). An industrial park for light industry has been under construction in Mingachevir since autumn 2016. Nine new factories are planned for cotton, acrylic and woolen yarn, clothing, hosiery and leather shoes. The project is worth up to USD 150 million. The first factory for the annual production of 20,000 tons of yarn is under construction. Under the umbrella organization for the Azerkhalcha carpet weaving mill founded in 2016, ten further smaller factories will be put into operation in 2018. Gilan Textil Park, Sumqayit, wants to expand its exports of home textiles. In the medium term, the construction of a silk spinning mill with an annual capacity of 3,000 tons of yarn is also planned.
 
GTAI Industry Check - Armenia
Textile and clothing industry: interest from abroad increases
Rising exports of clothing to Russia and western markets lead to expect further investments in the textile and clothing industry in 2018. Italian investors are planning to build a large jersey factory in Kapan (Sjunik region). The company SASSTEX in Artik (Schirak region) invests in two factories for the production of fashion (ZARA brand) and workwear. The Egyptian Wassef Group is considering the production of cotton fabrics and products therefrom. Yerevan-based hosiery and children's apparel manufacturer Alex Textile will continue its USD 28 million investment program in 2018 to expand apparel and hosiery production at several sites in Armenia.

• Large-scale projects in Honduras
• More vertical integration strived

Following the US President's decree against the Pacific Pact TPP, Central America's textile and clothing industry counts for its main market on further tariff advantages compared to the Asian competition. Next to the so far dominating subcontracting work the sector wants to intensify the production of pre-products, what requires more and better textile machinery for this purpose. Guatemala is already investing, while Nicaragua will continue to stay mainly with sewing and tailoring. The largest technology market was lately El Salvador.

Honduras wants to expand its textile and clothing industry strongly. The aim of the "20/20" program is to significantly increase exports and with it new jobs. One focus should be the production of sportswear and other synthetic clothing, including pre-products. Central America's "largest factory for polyester yarn" (DTY) went into construction at the end of January 2017 in Choloma. It is expected to cost USD 73 million and produce 25,000 tons per year. According to Mario Canahuati, a Honduran shareholder of the investor United Textiles of America, an additional USD 120 million factory for synthetic materials and garments should be added later.

Observers believe the sector's expansion plans are realistic because it can stem the relatively large investment in the synthetic fiber production. In the Honduran textile industry there are many joint ventures with US partners which can raise capital in North America. In the other countries of the region the sector companies are more strongly medium-sized. They are depending more on the local capital market with its high interest rates and restrictive banks.

Honduras, Guatemala and El Salvador invest

According to a machine representative the textile manufacturers in Guatemala will invest more in dyeing machines in order to become more independent from suppliers and keep the quality better under control. According to Invest in Guatemala the sector there delivers higher quality end products than the competition from El Salvador and Honduras, on the US market clothing from Guatemalan is almost twice as expensive.

The textile industry in Guatemala and El Salvador is more vertically integrated than in Honduras: it produces relatively quite a lot of yarn and fabrics by itself and is less dependent of the typical subcontracting (Maquila) method, which only imports textiles and re-exports them as finished clothing. Honduras mainly processes imported synthetic fiber yarns, which the country - like El Salvador - manufactures partly by itself.

The best market in Central America for a large German textile machine manufacturer is currently El Salvador, which imports the most technology in the region. The customers are quite innovative and work more concept orientated, which makes the cooperation easier. Due to increased yarn prices, some weaving companies are currently investing in spinning machines, a machinery salesman says. According to the Central America Strategic Sourcing Review, more than 20% of the factories are "vertically integrated".

In the opinion of machine representatives, Nicaragua is still concentrating on subcontracting. Investors are reluctant to spend larger sums which would be needed for modern textile  manufacturing. In addition there is a lack of good specialists for the foreseeable future, the level of training is only sufficient for easier sewing and clothing manufacturing. In Panama the textile industry does not play a nameable role; in Costa Rica, which is also relatively prosperous, the sector is larger, but exports little.

Central America’s textile and clothing industry

*) Costa Rica 29 Mio.; Clothing = almost total industry exports; 80% of exports are for the US; data from US import authority. Source: ITMF; national associations and authorities; Press

Central America Textile companies are usually located in a free zone and produce for export, mainly the US. In Honduras, according to a study by the Central Bank, Maquila - with textile / clothing as the largest segment - produced 36% of pre-products for other contractors and 64% of final products, which in turn were exported up to 99%.

US protectionism could even help

The protectionism, which is announced in the main market USA, develops some optimism to Central America's textile industry. As listed in “Honduras 20/20” it now can deliver more cheaply to the US than the competition from China or Vietnam because of existing trade agreements. At an - now not targeted anymore - omission of cutting US customs duties for Vietnam, it would be much more expensive. In addition, a garment factory in Honduras is able to deliver to the US in two days, a delivery from Vietnam requires twenty days. In the today so very fast fashion world, this is the main reason why Wal-Mart & Co. are ordering massive masses in Central America.

Until now, Central America has been supplying mainly cheap clothing for the US mass market, but, as a German machinery exporter is hoping, they will try to settle themselves against the Asian competition with higher valuable goods. For this the Central American manufacturers would need better technology, which preferable comes from Europe. In the view of other representatives Central America will need in future productive machines that are cheap at the same time. Chinese machines with European components are a big competition.

Machinery imports rising

Central America Imports of textile machinery and sewing machines have risen by one-third to over USD 130 million between 2013 and 2015. In addition, according to the International Textile Manufacturers Federation (ITMF), Honduras has imported 170 round knitting machines in 2014 and 2015, Guatemala only 26, El Salvador 23 and Nicaragua ten. Germany was the fifth most important delivery country. Leading supplier was the USA. For Guatemala, with its many Korean-owned textile companies, Korea (Rep) was the main supplier.According to ITMF, Central America will shift its investments somewhat away from the clothing area towards the textile sector. Already today, the representative of a German manufacturer says: "We are currently selling very well in Mexico and Central America." 

Central America‘s1) imports of textile machinery (bn. US$) 2)

1) without Honduras and Nicaragua; 2) SITC 724, without household sewing machines, (724.33), household washing machines, (724.71), machines for dry-cleaning(724.72), leather machines(7248), parts for household washing machines; 3) El Salvador only
Source: UN Comtrade

• Fiber Production for the first Time in five Years lower than Consumption

• Vietnam is largest beneficiary
• Relocation closer to sales markets

Hong Kong (gtai) - For global consumer product manufacturers, Asia has developed an important role as a procurement region. Large parts of production have been displaced in recent decades into the region and here traditionally mainly to China. The rising costs in China however lead to a strategy adjustment. Thus the production moved on to cheaper locations and a shift back closer to the end customer began. Free trade arrangements support this trend.

Labor costs in China will not move down again. Even when the economic growth increasingly weakens, China's coastal regions are already often too expensive for wage-intensive productions. The world's largest location of the manufacturing sector will anyway leave its dependence of exports and will generate more growth through domestic consumption. The remaining companies are therefore increasingly focused on Chinese customers. Has the textile industry heard the signals already several years ago and shifted away, now the electronics companies have started to search.

But – the relocation of production is not so easy, the experts agreed upon at the discussion panel Shifting Supply Chains in Asia on the Asian Financial Forum (AFF) in Hong Kong. Because no country, except India, offers such a workforce. But neither the infrastructure and the investment climate can match, nor the country has any interest in low-production stages. Furthermore China has set up a supply industry without any comparison.

Relocation trends slow down

Even Bangladesh, established for a long time as a cheap location for clothes, is losing its attractiveness - experts say. Besides fundamentally difficult production conditions especially scandals like collapsing factories are responsible. No western clothing manufacturer likes to be associated with that repute today. While Indonesia was generally judged for being rather little investment friendly, the Philippines would provide a better reputation than years ago. So in addition to numerous Japanese producers also German companies have moved from southern China to the special areas of the Philippines.

Due to wage cost increases by an average of 15% per year, China with it’s the low-wage area has catapulted itself in a large extent out of the market. In times of rising productivity this was compensated for a while but at last the model came to its limits. The empire of the middle will therefore make the leap to a consumptionbased growth based on production of high-tech and on the provision of services. It is still
unclear whether this leap across the "middleincome trap" will succeed. Many emerging countries are caught in this trap, and the growth is flagging.

German buyers order less in China

Accordingly German retailers are increasingly reducing their imports from China and buy more and more in other countries. This is the result of a member survey of the Foreign Trade Association of German Retailers (AVE), at which for the most part textile and shoe retailers participated. 80% of the respondents have already reduced their import volume from China in 2015, 90% of the companies said they are
planning to source from other supply regions. The merchants are seeing a shift to countries like Myanmar (78%), Bangladesh (67%) and Vietnam (56%).

Vietnam, which already benefited in recent years from the relocation, was still recommended on the AFF as a top location. The country with the highest economic growth in Southeast Asia in 2015 would have risen in the 1st half of 2015 to the fourth-largest exporter of textiles, the Vietnam National Textile and Garment Group (Vinatex) analyzed. For shoes it is already the third largest supplier worldwide. Based on mega investments from Samsung, now the electronics industry came out of the starting blocks and should attract more activities. Experts cite especially the mixture of young, growing populations with low labor costs as an important locational advantage.

Vietnam benefits from Free Trade Agreements (FTA)

A thrust Vietnam's attractiveness currently receives through free trade agreements which are in a final stage. So a free trade agreement with the European Union was signed in December 2015 which was followed early February 2016 by the Trans Pacific Partnership (TPP). The latter agreement, which includes next to ten other Pacific neighbors the United States, should bring a large benefit for Vietnam. For the Vietnamese consumer goods manufacturers the US is the most important market, the large retailers in the United States can move their procurements very fast.

As an underdeveloped member Vietnam is likely to get larger portions of the value chain in the textile and electronics area at the ratification (and even before). The country is still missing a developed supplier structure. This is just happening to be built in the textile sector, there are investments in capacity for yarns, fabrics and dyeing going on. For Samsung, the largest foreign investor, all components are still coming
from China. And only when a large proportion of the added value comes from TPP member states, the low duty will become applicable.

While the purchasing power is not quite so big in Europe, costs play an important role also there. But next to it the control of the supply chain and the flexibility has developed a greater role, rapid changes of trends and collections are determined by customers and the Internet. Therefore also here a shift back, closer to the markets, has begun. Romania and Bulgaria have established themselves in the middle of
Europe as a "low-wage locations". But even there the population is characterized by aging. Accordingly labor forces will become scare and wages will rise. Ukraine is traded as a new location.

Africa still with small potential

Little potential the experts from the Supply Chain Panels evidence the location of sub-Saharan Africa. This was tested by some buyers or producers, but the results would not be convincing. The views however diverge. Some Chinese companies are already partly on site and American manufacturers are monitoring the further development. So, for example, the VF Corporation, the largest denim retailer in the world, is buying in Africa. Only Ethiopia would have potential - according to a representative. But the infrastructure, investment climate and working morale could not be comparable.

So - basically serious alternatives to the established locations are lacking. Therefore, due to the scarcity of labor, costs and thus the final prices will rise. Even in Vietnam the minimum wage increased by 15% in 2015. But when it will be hardly possible to turn at the purchase screw, the companies need to position themselves better in marketing and sales, so a large clothing buyer. Therefore social media must be used in order to come closer to the customer and, for example, to develop individualization as a selling point.

Source: McKinsey survey of chief purchasing managers

• Creating local branding
• Gradual relocation towards abroad

Beijing (gtai) - Away from cheap mass production or relocation are the alternatives for the Chinese textile and clothing industry. A domestic "Go-West" does probably not pay off in the long term, the migration however to Southeast Asia has already started. At the same time German quality suppliers expect new sales opportunities if the companies strengthen their competitive position through more quality. This became clear at the last "Intertextile" October 2015 in Shanghai.

The Chinese textile and clothing industry is under massive pressure of costs. Away from cheap mass production or relocation is the need of the hour. Until now the industry is primarily located at the Pearl River and the attached Yangtze River Delta, where wages on average are the highest nationwide. According to the China National Garment Association (CNGA) about 70% of the production volume account for the five provinces of Shandong, Jiangsu, Zhejiang, Fujian and Guangdong.

Supported by the policy is the move to the more favorable central and western provinces. This happens not least to the preservation of local jobs and the development of the far less booming regions of the country. In this sense not only the CNGA endorses the relocation of clothing manufacturers to Xinjiang. In the western province 30% of the cotton of the country is grown, which with 6.2 million tons in 2014 is the largest cotton producing area in the world. After association investments the authorities are planning investments amounting to USD 3.2 billion, amongst other things for the establishment of "Textile Industry Parks".

Another attempt to shift the Chinese textile industry from the coast to the west, represents the Ningxia Ecological Rextile Industrial Demonstration Park, which was opened in December 2014. According to China.org.cn by 2020 here about 50,000 people work should be working there in the textile industry.

"Go West" is not attractive for private textile and clothing companies

To which extent these efforts will be successful remains to be seen. However, said by a Chinese businesswoman, "Go West" at best will be a medium-term solution, because also there sooner or later the wages would rise (not to mention the already there noticeable higher logistics and other costs). If to move, then only to permanently cheaper overseas locations. A migration to Vietnam, Bangladesh or Cambodia is already going on. But the fact is that so far a large displacement wave - at home or abroad - has not yet happened.

That Vietnam and Bangladesh have climbed in a few years to the third and fourth place of the main source countries for the PRC in terms of clothing (Vietnam: USD 587.5 million, Bangladesh: USD 364,7 each in the first ten months of 2015 for HS-Pos. 61 and 62), results very predominantly on already shifted production capacities of Chinese manufacturers. They bring their products from there back to China to sell them here.

Vietnam as a manufacturing site should also gain in the course of the in October 2015 successfully completed negotiations for the Trans-Pacific Partnership (TPP) trade agreement between the US and Vietnam in importance for Chinese enterprises. After coming into effect exports from Vietnam to the United States will be duty-free. In November 2015 for example was to read in China Daily, the Huafeng Co. of Shandong would be planning to build a textile mill in the Southeast Asian neighboring country with an investment of 700 million Renminbi (RMB - approximately 110 million USD, 1 USD= 0,157 RMB, the average rate as of November 2015).

Cambodia does not play in the foremost league yet, but pushes with power forward: During the named period, imports of knitted and crocheted clothing rose by 38.1% to USD 124.8 million (HS-Pos. 61) and other clothes (HS-Pos. 62) by 18.4% to USD 32.3 million.

However, for the relocation certain limits are set as the target countries often reach their capacity limits. Considered has to be the in China existing extremely advantageous integration of the various stages from cotton growing over the wide textile processing up to the final cutting and sewing of clothing.

Superiority in quality rather than relocation

Instead on a further relocation innovative companies and designers rely on an upgrading of their products. The aim is to serve more demanding customers in the Chinese market - and to position themselves abroad. To these belongs the fashion designer Ma Ke, who designs clothes for China's First Lady Peng Liyuan, or Guo Pei, who caused stir with her creation for the singer Rihanna at the Met Gala 2015 in New York.

Apart from individual stars of the scene also increasingly large companies such as the down jacket specialist Bosideng or the men’s wear designer Mark Fairwhale and Ningbo PeaceBird move away from pure volume production towards brand building and quality. Bosideng has even opened its own flagship store in London. The awareness of important Chinese brands such Heilan Home or Metersbonwe is still limited to local customers, for the majority of European buyers they are not a concept. But according to sector insiders this is likely to change, step by step.

Source: China Daily based on Euromonitor

For German suppliers in terms of top materials (usually the most expensive materials), accessories (such as interlinings, buttons, thread, packaging) or also in cutting and sewing, China remains interesting. This was demonstrated once again at the last "Intertextile" in October 2015 Shanghai.

Two opposing trends are apparent: On the one hand exhibitors reported about a shift in demand to other countries in the wake of rising wages and ancillary wage costs. On the other hand suppliers of more expensive products can now look and hope beyond of inexpensive mass markets to the emergence of new niches, so a producer of woven-real hair fur materials. A provider of real horn buttons thinks similar.

The next "Intertextile" with a German pavilion takes place from October 11th to 13th 2016 in Shanghai ("Intertextile Shanghai Apparel Fabrics Autumn Edition"; information under www.auma.de or www.intertextile.com.cn).

Generally exhibitors recommend for risk diversification to build a second pillar next to the site in China. "The caravan moves on," is said. Currently the lowest wages for garment workers are being paid in Bangladesh, the country also benefits from duty-free agreements for imports into the EU. The latter also applies for Cambodia. Also very competitive the seamstresses are working in Vietnam and India. Moreover, Africa (specifically for example Ethiopia) will play an important future role, also a production facility in Korea (Dem.) is not outrageous for Chinese textile companies.

In general free trade agreements should get considerably more weight in future, as this is the case today.