C ROATIAN T EXTILE AND L EATHER I NDUSTRY COMES OUT OF THE C RISIS

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1 TEXTINATION NEWSLINE C ROATIAN T EXTILE AND L EATHER I NDUSTRY COMES OUT OF THE C RISIS MORE SUBCONTRACTING AND FUNCTIONAL TEXTILES / BENEFITS OF EU MEMBERSHIP Zagreb (gtai) - Croatia's traditional textile industry feels an upswing in the country since joining the EU. It had to suffer substantial losses as a result of the economic crisis. The apparel sector receives more subcontracting orders from European brand manufacturers and the leather and footwear industries are attracting new foreign investors. Investments in new, high-quality fabrics, which are supported by the EU structural aid, are considered promising. The Croatian textile and clothing industry seems to have overcome the longstanding economic slump. The exports increased by 28.1% respectively 55.1% in 2014 over the previous year. The positive trend continues in early Thanks to its manufacturing flexibility and with its in EU standards low wage costs, the sector was able to achieve a lot of processing orders in the past two years. 2008, after the outbreak of the global economic crisis, such orders were sharply fallen, distinctly resulting in insolvencies and bankruptcies in the sector. Until the end of 2013 some 9,000 jobs were lost. According to the Croatian Chamber of Economy (HGK) the manufacturer revenues shrank with K 5.4 billion in 2008 to K 4.8 billion (the average exchange rate 2008: 1 Euro = 7.22 Kuna and 2013: 1 Euro = 7.57 Kuna). Some sector companies have used the crisis to strengthen their competitiveness. Thus the renowned manufacturer of men's suits, Kotka from Krapina, invested nearly EUR 6 million in new machinery and equipment. HGK estimates that there are more and more domestic producers which are using modern sewing and garment technology. In 2014 Croatia has imported textile and leather machinery in a value of EUR 32.5 million (+ 29.4% compared to 2013). Leading supplier with an import share of 38.7% was Italy, followed by Germany with 33.3%. Especially small and Textination GmbH 1

2 medium-sized enterprises (SMEs) in the sector can apply for the new EU structural aid. There is a tender of a total of almost EUR 150 million, with which technology procurements and the redesign of production processes should be promoted in spring Moreover there is still a strong demand from craft and small enterprises for used machines. They produce for the local market and employ skilled workers which have been laid off from the larger clothing companies in the crisis. According to the HGK In the capital Zagreb alone there are over 120 such small companies, in Croatia in total about 460. Competition has increased On the domestic market the competitive pressure on the Croatian garment industry has increased since the EU accession by a stronger presence of international fashion chains such as H & M, C & A and Zara. Thus clothing imports surged in the height by 69.0% in 2014 compared to the previous year. Therefore the domestic manufacturers want to become involved more in high-quality textiles, especially in the development and use of technical materials and the production of professional clothing, workwear and shoes. For innovation companies can get access to a total of EUR 165 million in the new EU funding period from 2014 to Unlike at other funding priorities next to SMEs also large businesses have access. In this category throughout the foreign companies can be found, which are seen as part of their parent companies. The call for these projects is planned for summer In order to become less dependent from commission processing contracts, the apparel sector wants to invest more in marketing and brands. The development of new markets, such as the Russian market, is essential for them. In % of all Croatian clothing exports went to the EU. Italy and Germany took due to extensive subcontracting transactions more than 60% of it. The two Italian clothing manufacturers, Benet- ton and Calzedonia, are the largest foreign investors in the sector. The hosiery and underwear producer Calzedonia operates in northwestern Croatia four production plants and has opened immediately after the EU accession a large logistics center, from which it supplies its businesses worldwide. Whether further capacities will be built depends on the improvement of the investment climate in Croatia, in particular in the tax policy. Not least the location Croatia is in a fierce competition with neighboring Serbia, where, thanks to more attractive investment incentives, just now a lot of clothing manufacturers settle. Benetton is planning to close its operation in the Istrian Labin in summer 2015 in order to shift the production among others to Serbia. Petra Bork / pixelio.de Claudia Hautumm / pixelio.de Paul-Georg Meister / pixelio de Textination GmbH 2

3 Croatia offers funding opportunities Sector experts do not rule out that thanks to the EU membership and the lower wages in the sector some production segments from other EU countries, that have higher labor costs, will be transferred to Croatia. The Croatian industrial strategy also provides special support measures by 2020, like social security reductions for older workers in export-oriented enterprises. The employees in the Croatian textile and clothing industry have a relatively high average age of 45 years. The strategy sees the greatest export potential for garments made of knitted fabrics. The accession of Croatia to the EU as well as the productive and well-skilled workers is also behind the recent successes of the leather / leather goods and footwear sector. According to HGK-information it achieved revenues of K 3.2 billion in 2014, around 71% of what was achieved with shaping and dyeing of leather and skins; the footwear production accounted for 25% of the sector s turnover and around 4% of the manufacture of suitcases and bags. Foreign investors are present Largest foreign investors in the leather processing are automotive suppliers, especially Boxmark (leather seat covers) and Wollsdorf from Austria (steering wheel leather). The latter has started its operation in mid-2015 in Varazdin. In the footwear sector Haix (working and safety shoes) and Paul Green (street shoes) are included; they produce in the northern Medjimurje County. The German Haix-Group is active since 2004 in Croatia and had recently invested EUR 12 million in new capacities. The domestic shoe production is still dominated by Borovo in Vukovar, which is currently undergoing a restructuring process. Successful niche manufacturers are there for children shoes as well as protective footwear. About three quarters of the textile and clothing industry and the leather and shoe manufacturing are located in the northwest of Croatia, where the wage level is the lowest nationwide. Both industries employed together around 27,000 workers in 2014 and thus approximately 14% of the total manufacturing employment. Both sectors are highly dependent on imports of raw materials and semi-finished goods. Imports of textiles, clothing and footwear reached in all sectors consistently a double-digit growt in 2014 over the previous year. Also the exports rose at this rate. Dieter Schütz / pixelio.de Elheim / pixelio.de Import of textiles, clothing and footwear (in EUR million, changes in %) Goods Change 2014/2013 Yarns Fabrics Technical Textiles Hometextiles Clothimg Textination GmbH 3

4 Shoes Source: Eurostat Export of textiles, clothing and footwear (in EUR million, changes in %) Goods Change 2014/2013 Yarns Fabrics Technical Textiles Hometextiles Clothimg Shoes Source: Eurostat Croatia's largest textile, clothing and leather processing companies in 2014 Company, Location Turnover, in bn. Product assortment Website Euro 1) Boxmark Leather, Trnovec Bartolovecki Leather seat covers Benetton Tekstil, Labin Clothing n. a. Ytres, Gornji Kneginec 2) 78.0 Hosiery knitted and crocheted AquafilCRO, Oroslavje 47.4 Yarn of synthetic fibers Tubla, Cakovec 2) 42.7 Hosiery knitted and crocheted Borovo, Vukovar 27.9 Shoes Varteks, Varazdin 23.1 Women s and men s wear Comprom plus, Varazdin 2) 19.2 Swim suits Viviani- Psunj tvornica koze, Resetari 13.6 Leather Haix obuca, Mala Subotica 13.3 Functional shoes Kelteks, Karlovac 12.7 Technical Textiles 1) Total revenues include direct sales next to further income; 2) part of the Calzedonia Group Sources: Business Magazine Lider, Financial Agency FINA, companies Contact addresses: Hrvatska Gospodarska komora-hgk (Chamber of Commerce of Croatia) Udruzenje tekstilne i odjevne industrije (Association of Textile and Clothing Industry) Udruzenje Kozarsko-preradjivacke industrije (Association of leather-processing industry) Draskoviceva 45, Zagreb Tel.: / , Fax: industrija@hgk.hr, Internet: HUP Udruga tekstilne i kozne industrije (Association for textile and leather industry in the employers' association) Radnicka cesta 52/1, Zagreb Tel.: / , Fax: ana.falak@hup.hr, Internet: Hrvatski klaster konkurentnosti industrije tekstila, i koze obuce Textination GmbH 4

5 (Croatian competitiveness cluster for the textile, leather and footwear) Agencija za investicije i konkurentnost (Agency for investments and competitiveness-aik) Radnicka cesta 80, Zagreb Tel.: / , Fax: klasteri.konkurentnosti@aik-invest.hr, Internet: Quelle: Germany Trade & Invest Textination GmbH 5