REPUBLIC OF BULGARIA Bulgarian Small and Medium Enterprises Promotion Agency

REPUBLIC OF BULGARIA Bulgarian Small and Medium Enterprises Promotion Agency PROJECT BG161РО003 4.2.01-0001, PROMOTION OF THE INTERNATIONALIZATION OF THE BULGARIAN ENTERPRISES Проект BG161РО003 4.2.01-0001, НАСЪРЧАВАНЕ НА ИНТЕРНАЦИОНАЛИЗАЦИЯТА НА БЪЛГАРСКИТЕ ПРЕДПРИЯТИЯ This project is financed by the European fund for regional development through an Operational programme Development of the competitiveness of the Bulgarian economy 2007 2013 Този проект е получил финансиране от Европейския фонд за регионално развитие чрез Оперативна програма Развитие на конкурентоспособността на българската икономика 2007 2013 EXPORT STRATEGY Manufacture of wearing apparel, including leather apparel, tanning of leather June 2012

LIST OF ABBREVIATIONS EU European Union BSMEPA Bulgarian Small and Medium Enterprises Promotion Agency MAF Ministry of Agriculture and Food MEET Ministry of Economy, Energy and Tourism MRDPW Ministry of Regional Development and Public Works SME Small and Medium Enterprises ITC International Trade Centre NCEA National Classification of Economic Activities NSI National Statistical Institute OP Operational Programme OTEA Office of Trade and Economic Affairs 2

CONTENTS INTRODUCTION... 4 1. APPROACH FOR DEVELOPING THE EXPORT STRATEGY... 5 2. MAIN CONCLUSIONS OF THE ANALYSIS OF THE CURRENT SITUATION 11 3. SWOT AND LOED ANALYSIS OF SECTOR "MANUFACTURE OF WEARING APPAREL, INCLUDING LEATHER APPAREL, TANNING OF LEATHER... 33 4. VISION AND OBJECTIVES... 37 5. STRATEGY FOR PROMOTING THE EXPORT OF SMES IN THE SECTOR.. 39 6. ACTION PLAN... 41 7. MONITORING AND CONTROL SYSTEM... 51 3

INTRODUCTION The export strategy for sector Manufacture of wearing apparel, including leather apparel, tanning of leather has been developed under Project No BG161РО003 4.2.01-0001 Promotion of the internationalization of the Bulgarian enterprises under Priority Axis 4 Strengthening the international market positions of Bulgarian economy under Operative programme Competitiveness of the Bulgarian economy, in the frame of Contract BG- 161PO003-4.2.01-001-C00001 for providing direct grants, in which the Bulgarian Small and Medium Enterprises Promotion Agency (BSMEPA) is the institutional beneficiary. The objective of the export strategy for sector Manufacture of wearing apparel, including leather apparel, tanning of leather is to support the Bulgarian micro, small and medium-sized enterprises in the sector, in order to enhance their competitiveness, internationalization level and initial entering or expansion of the market share of Bulgarian products, in particular of those with higher added value. The Bulgarian state, represented by BSMEPA, MEET and other government bodies, has recognized the SME sector to be extremely sensible and at the same time as having decisive importance in the economic field, deserving special attention. The diversity in the development of various industrial sectors, where the SME development has its place, as well as national priorities, related to promoting the country s export, require drafting of export strategies for certain sectors, one of which is Manufacture of wearing apparel, including leather apparel, tanning of leather. Focusing the support and defining of precise reference points for State intervention through its institutions, as well as offering development options for the rest of the participants in the process will strengthen in positive aspect the plan-based principle in State activities and as a result will improve the sector functioning. The successful realization of the Export strategy is expected to lead to the improvement of the process of entering international markets and the active expansion and strengthening of the market positions of Bulgarian small and medium enterprises, manufacturing wearing apparel. At the strategy development, general consideration has been made of the findings and conclusions of the carried out studies of existing strategic and legal acts. The Methodology of strategic planning, drafted by the Council of Administrative Reform at the Council of Ministers of the R. of Bulgaria has also been taken into account. 4

1. APPROACH FOR DEVELOPING THE EXPORT STRATEGY The export strategy is a strategic document, setting the mid-term objectives and priorities for the export development of SMEs from sector Manufacture of wearing apparel, including leather apparel, tanning of leather. It has been drafted on the basis of the strategic planning approach, which adroit use has the following advantages: Ensures good comprehension among stakeholders for the trends and what could bring the future; Creates general vision and consensus among stakeholders, by coordinating various initiatives under the selected objectives; Identifies the projects and actions undertaken or planned; Strengthens the partnership among the government bodies, the business and other parties for solving complex problems. When developing such a strategic document it is extremely important to precisely formulate the owner of the strategy, i.e. the institution or institutions responsible for the overall implementation of the strategic documents, as well as the concrete phases of the strategic planning. Most commonly the phases of elaboration of the strategic document are: Assignment Preparation Development Coordination Adoption Implementation Evaluation Update Each of these phases contains different activities, some of which, as assignment, preparation, elaboration, coordination, adoption and update at a later stage, will be part of the project, implemented under the contract, mentioned at the beginning. Consequently, the main owner of the export strategy is the Bulgarian Small and Medium Enterprises Promotion Agency (BSMEPA). For this reason, objectives, measures and various actions set in the strategic document should first help BSMEPA to improve planning and implementation of activities, related to export support of SMEs in sector Manufacture of wearing apparel, including leather apparel, tanning of leather. This formal logic does not contradict to the fact that a significant number of institutions, businesses and even the population are involved as stakeholders and they might be influenced by means of different mechanisms, for example, the state institutions through the forms of coordination of strategic documents of such rank, and the branch associations and the business by providing incentives to increase their export potential. It is of extreme importance for SMEs in sector Manufacture of wearing apparel, including leather apparel, tanning of leather to be able to see a clear and predictable export 5

supporting state policy, which, though in the medium run, will allow them to decide whether to benefit or not from the created opportunities. Technology of strategic planning The strategic planning process includes the following steps: Identification of the stakeholders Analysis of the environment SWOT analysis Vision Definition of targets Selection of alternative development strategy Action plan Monitoring system Each of these steps has certain peculiarities, namely: Identification of the stakeholders. A stakeholder is any person or group, that requires attention, that can influence certain decision, may contribute with resources or may be affected by given decision. Involving stakeholders at an earlier stage of the strategic document development may lead to better expressed consensus on the targets and greater readiness to support the decision. The stakeholders of the Export strategy may include different people and organizations: companies, government bodies, manufacturers associations, businesses, consumers of the products, NGOs and experts. The specifics of developing business supporting strategies are that prepared documents shall not favour some and/or discriminate other businesses. This is the reason why there was a pursuit for equality when involving business organizations and different branch associations, as well as a search for an opportunity that the majority of businesses could benefit from the analysis made. Analysis of the environment. The analysis of the environment (the conclusions of which serve as a basis for the SWOT analysis) allows the formulation of goals and priorities which shall align the efforts and shall not be dissociated from time and environment. The analysis is focused at: The current state of sector Manufacture of wearing apparel, including leather apparel, tanning of leather in Bulgaria, trends, dynamics, growth; Characteristics of export-orientated SMEs, including regional distribution; Condition of the export of goods and services; Analysis of the goods and services in sector Manufacture of wearing apparel, including leather apparel; tanning of leather, having export advantages and export potential; Estimation of productions with the highest value added growth potential in the export of goods and services, where Bulgaria has global market share; 6

Size of the international market; Competitiveness of the export of goods and services for the existing and potential foreign markets; Share of the products made in Bulgaria; Share of the Bulgarian export of analyzed product groups in the total volume of imports on the global markets; Leading importer-countries in sector Manufacture of wearing apparel, including leather apparel; tanning of leather ; Values and volumes of the import on concrete external markets for certain product group; Main suppliers on the corresponding markets; Identification of barriers to the internationalization of the companies in the sector and measures for overcoming them. Based on the prepared analyses, the current problems and achievements of the sector should be identified, and prognoses, opportunities and prospects for development shall also be motivated, such as: Achieving significant growth of Bulgarian goods in general, as well as of goods with higher added value; Determination and priority setting of target markets by product groups; Prognosis for the development of export and import of goods and trade balance for the next five and more years. The analyses are based on available analytical and programme documents, accessible statistical information, as well as information from carried out surveys interviews and focus groups. The analysis of the environment traces out the current condition of SMEs in sector Manufacture of wearing apparel, including leather apparel; tanning of leather and the export process; establishes the reasons, provoking problems in the development and sets the guidelines for future development. SWOT analysis. The SWOT analysis gives the opportunity to identify the main internal factors, differentiated as strengths and weaknesses and the external factors opportunities and threats, helps formulating the strategic objectives, priorities and measures. The use of SWOT protects from setting unreachable objectives and priorities for the export development of SMEs in sector Manufacture of wearing apparel, including leather apparel; tanning of leather within the Strategy period. The use of SWOT analysis in developing the Export strategy has certain specifics, as the owner of the strategy is the BSMEPA, but the analysis is focused on the export process of SMEs in this particular sector and not on the institution itself. LOED analysis. The LOED analysis is a tool, showing how to build on strengths and to overcomes the weakness, how to use the opportunities and to protect against threats, identified by means of the SWOT analysis. Setting the targets. The strategic planning is focused on issues of critical importance, opportunities and problems, faced by the export of SMEs in sector Manufacture of wearing 7

apparel, including leather apparel; tanning of leather. It helps to outline the really important decisions from those decisions with temporary impact. Setting the targets by making a hierarchical tree of goals is a working instrument that gives the opportunity to work out in detail from the most common general objectives to the specific ones. The definition of the general strategic objective is extremely important for the future development of exports of SMEs in sector Manufacture of wearing apparel, including leather apparel; tanning of leather. The general strategic objective is seeking to find answer to one basic question: How do the main institutions and stakeholders in the process want the export of SMEs in the sector look like in the long-term period? Reaching the level of specific targets permits finding the answer of the questions about who, what and when, so as to guarantee the achievement of the goals set higher in the hierarchy. Selection of alternative development strategy. After objectives setting, the paths for their achievement are sought. Practice shows that this may be done through different ways, representing different alternatives for development and achievement of the objectives. At this stage of the strategic planning, various alternatives are evaluated from different points of view and criteria and as a result an alternative is chosen, which then becomes a development strategy. Action plan. The chosen strategy is to be supplied with certain activities and measures, bound to deadlines, people in charge, performers and funding. The Action plan and the measures provided therein transform this strategic instrument into everyday work and implementation of the policy of supporting the export of SMEs in sector Manufacture of wearing apparel, including leather apparel; tanning of leather. Monitoring system. The last stage of the strategic planning process is monitoring and evaluation of the progress of implementing the general and specific objectives, laid down in the export strategy and in the action plan. Monitoring is important as it gives the possibility to undertake corrective actions, if the progress is unsatisfactory or if the conditions are changed. Reporting the progress in achieving the general objectives to the public and the business is also important, as to grant them the opportunity to estimate the work of relevant institutions and stakeholders in the implementation of the strategy. It should be noted that very often impacts may not be visible or obvious which makes their measurability difficult. Moreover, impact may often result in cumulative effect and it may additionally complicate the analysis. This gives particular importance of the monitoring, which is closely related to all stages of implementation of the Export strategy preliminary (ex ante), current (parallel to realization) or posterior (ex post) evaluation. In order to monitor the implementation of the export strategy and to evaluate the results achieved in terms of defined goals, it is necessary to use a set of indicators related to the implementation of the strategic document, that are to be determined preliminary or early enough, as to use the data obtained thereof. In most of the cases, these will be target values, which in aggregate will correspond to the objectives of the strategic document. Monitoring provides the feedback, helping to assess the success or failure of the planning document. In order to perform the monitoring process is it necessary to define: Monitoring indicators (what is to be monitored); 8

Periodicity of monitoring and evaluation (when the corresponding reports will be prepared); Responsibilities related to monitoring and evaluation (who does what), and competences for decision-making on changes (update of the strategic document). INFORMATION SOURCES In developing the export strategy the following main information sources have been used: National Statistical Institute Information, provided by the BSMEPA Information from the Ministry of Economy, Energy and Tourism Eurostat International Trade Centre Information, published in relation to international forums and meetings Official electronic information sources Information, published by branch associations in the sector Information by the Bulgarian Industrial Association and the Bulgarian Chamber of Commerce and Industry, and their regional divisions Information from a survey, carried out in the period October 31 November 28, 2011 with the senior management of 5 (five) small and 22 (twenty-two) medium enterprises (total of 27), operating in the sector, and from a focus group. Information is processed with the will for maximum objectivity of the findings. In many cases, the analyzed information applies to sector Manufacture of wearing apparel, including leather apparel; tanning of leather as a whole, i.e. the information covers both SMEs and large enterprises, based on the assumption that if a Bulgarian company has been successful on certain markets, the same could be expected for another company as well, incl. from the group of SMEs. These specifics are explicitly underlined during the analysis. 9

STRUCTURE OF THE EXPORT STRATEGY FOR SECTOR MANUFACTURE OF WEARING APPAREL, INCLUDING LEATHER APPAREL; TANNING OF LEATHER In determining the structure of the Export strategy for sector Manufacture of wearing apparel, including leather apparel; tanning of leather the use of the strategic planning approach is considered, which sets the general parameters of the strategic document. At the same time, a study was made of the structure of other institutional strategic documents, using the following estimation criteria: - providing opportunity for relatively easy access to the document through comprehensive and logical structuring of different parts; - presenting the content in an attractive and easy-to-understand manner accessible to non-professionals as well; - providing information thematically, i.e. structuring the material in a way that allows in-depth penetration into problems and analyzes only if desired by the reader. The above mentioned criteria were met by several of the studied strategies and they contained two clearly distinguished separate parts, namely: 1. A main document, in which the separate chapters are defined according to the above described technology of strategic planning. 2. Appendices that contain the complete text of the analysis, including conclusions, transferred to the main document. This approach was preferred in structuring the Export Strategy for sector Manufacture of wearing apparel, including leather apparel; tanning of leather. Following consultations with the Assignor, the findings and conclusions in the main document were supplemented with specific data and visualized by graphs and diagrams, thus increasing the information content of the document. 10

2. MAIN CONCLUSIONS OF THE ANALYSIS OF THE CURRENT SITUATION This part contains the summarized conclusions of different analyses, included in Analysis of the environment, being one of the main steps in the strategic planning technology. In appendix to this strategic document, the complete text of facts and analyses is presented, on the basis of which conclusions are drawn. The conclusions and the analyses themselves are structured in 6 parts, as follows: STATE AND DEVELOPMENT OF THE SECTOR IN BULGARIA EXPORT ORIENTATION OF THE SECTOR GOODS WITH EXPORT ADVANTAGES AND POTENTIAL COMPETITIVENESS OF THE EXPORT OF GOODS ON FOREIGN MARKETS EXPORT PRIORITY PRODUCT GROUPS IN THE SECTOR AND MAIN MARKETS BARRIERS TO THE INTERNATIONALIZATION OF SMES AND MEASURES FOR THEIR OVERCOMING STATE AND DEVELOPMENT OF THE SECTOR IN BULGARIA Generally for sector Manufacture of wearing apparel, including leather apparel, tanning of leather The ownership in the sector is entirely private and most of the companies are micro, small and medium enterprises. This is a precondition for higher flexibility of production and better adaptation to market trends. The dynamics of production and turnover of companies in the sector, measured by the indexes of industrial production and turnover, show similar trends to those in industry total and in manufacturing in the period 2001 2010. The stable growth is crushed after 2007 and in 2010 the pre-crisis levels are recovered in terms of turnover on international markets, while the drop on the domestic market remains unchanged. The regional distribution of companies in the sector is uneven, as the biggest concentration is observed in the South-Western region and South-Central region, which is related to traditions in production. SMEs in sector Manufacture of wearing apparel, including leather apparel, tanning of leather The sector is a leader in manufacturing in terms of number of SMEs and number of employed. The sector is one of the largest employers in the country and in 2010 it provided employment to nearly 24% of the employed in SMEs in manufacturing and over 6% of the employed in SMEs in industry total. The percentage of decrease in the number of companies and employed in 2010 compared to 2009 is higher than the average in manufacturing and one of the 11

highest among the 18 analysed sectors, implying a significant impact of the global economic crisis on the sector. In inner-sector aspect, Manufacture of outerwear, without working apparel, Manufacture of other wearing apparel and clothing accessories and Manufacture of footwear account for the biggest number of companies in the sector. SMEs in the sector generate 9% of the turnover and over 14% of the value added in manufacturing. The change in 2010 compared to 2009 in both indicators is insignificant, and by these indicators the sector ranks second after sector Manufacture of food products. Notwithstanding the upward trend in labour productivity of SMEs in sector Manufacture of wearing apparel, including leather apparel, tanning of leather, it remains relatively low, making about 60% of average labour productivity of SMEs in manufacturing and 49% of average labour productivity of SMEs in industry total. Labour productivity of the sector is 4 times lower than that of the leading sector in manufacturing, Manufacture of pharmaceuticals products and preparations. Estimations of workforce quality and the relatively low priority of measures for raising the qualification of personnel allow concluding that the sector disposes of qualified workforce able to apply traditionally good practices in manufacturing. EXPORT ORIENTATION OF THE SECTOR Generally for sector Manufacture of wearing apparel, including leather apparel, tanning of leather The sector ranks first among the 18 sectors with export potential. In the period 2001 2010, the total Bulgarian export of wearing apparel amounts to nearly 29,6 billion BGN and accounts for 14,54% of total national exports in this period and for 23,9% of the export, realized by the 18 analyzed sectors. The position of the Bulgarian products on the international market both in the manufacture of wearing apparel and in the tanning of leather and footwear manufacture is stable and records progress until 2007. The levels of 2007 are restored by end-2010, before the world economic crisis, implying a recovery of consumption on the foreign markets and increase in orders. SMEs in sector Manufacture of wearing apparel, including leather apparel, tanning of leather In 2010, the sector ranks first in terms of share of SMEs in total exports of the sector (more than 57%) and in 2009 it ranked second. This ranking is indicative of the great importance of SMEs for the development and export capacities of the sector. The generally observed trend in export volumes in 2010 compared to 2009 is a decrease in the export of SMEs, with an increase in the total export of the sector, 12

showing that small and medium enterprises are more significantly affected by the global financial economic crisis, in comparison with large companies. The largest export shares in 2010 are held by the companies in Manufacture of wearing apparel, excl. leather apparel accounting for 93,36% of the export of companies in Manufacture of wearing apparel and the companies in Manufacture of footwear, accounting for 80% of the export of companies in Tanning of leather, manufacture of footwear and related leather products. In terms of the indicator volume of exports per 1 employed sector Manufacture of wearing apparel, without leather apparel ranks third among the examined sectors which is indicative for its strong orientation to foreign markets. SMEs which participated in the company survey work mainly for export for the whole analyzed period the number of companies, exporting more than 60% of their production is prevailing, and in 2011 their share reached 80%. Companies in the sample export directly without the mediation of trade companies, creation of joint trade activity with other companies, etc. GOODS WITH EXPORT ADVANTAGES AND POTENTIAL Generally for sector Manufacture of wearing apparel, including leather apparel, tanning of leather The product groups, manufactured and exported in sector Manufacture of wearing apparel, including leather apparel, tanning of leather are extremely numerous. Therefore the selection of product groups with export advantages and potential was done on the basis of several criteria, namely highest relative share in the export of the corresponding product group, increase during the studied period or realized big export volumes before the beginning of the global economic crisis. The analysis includes also the product groups with relatively stable exports during the studied period. These criteria were applied for the sector in total, as official statistical information on SMEs is not available. The application of the selected criteria to data of the International Trade Centre allows determining the following 13 product groups, which have export advantages and potential: Articles of apparel and clothing accessories, knitted or crocheted 1. Women's or girls' suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, knitted or crocheted 2. Women s or girls blouses, shirts and shirt-blouses, knitted or crocheted 3. T-shirts, singlets and other vests, knitted or crocheted 4. Jerseys, pullovers, cardigans, waistcoats and similar articles, knitted or crocheted. Articles of apparel and clothing accessories, not knitted or crocheted 5. Women s or girls overcoats, capes cloaks and anoraks other than those of heading 6204 6. Men s or boys suits 7. Women's or girls' suits 13

Articles of leather; saddlery and harness; travel goods, handbags and similar containers; articles of animal gut 8. Trunks, suit-cases, vanity-cases, executive-cases, brief-cases, school satchels, spectacle cases, binocular cases, camera cases, musical instrument cases, gun cases, holsters and similar containers; travelling bags, insulated food bags 9. Articles of apparel and clothing accessories, of leather or of composition leather Footwear, gaiters and the like; parts of such articles 10. Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of leather 11. Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials 12. Other footwear 13. Parts of footwear (including uppers, whether or not attached to soles other than outer soles); removable in-soles, heel cushions and similar articles, gaiters, leggings and similar articles and parts thereof The main findings of the analysis of the ranking of Bulgaria in the world export, the export dynamics, and the position of the country in terms of export of the selected product groups in the sector are summarized in the table below: Product groups Women's or girls' suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear) Men s or boys suits, ensembles, jackets, blazers, trousers, bib and brace overalls, breeches and shorts (other than swimwear) Women s or girls overcoats, car-coats, capes cloaks, anoraks (including ski-jackets), windcheaters, wind-jackets and similar articles other than those of heading 6204 Rank in the world export in 2009 Rank in the world export in 2010 Share in the world export in 2010 Share in the export of the leading world exporter in 2010 to 2001 Share in the export of the leading world exporter in 2010 1 27 25 0.57% 4.21% 1.81% 32 29 0.67% 3.49% 2.61% 25 17 0.74% 2.97% 1.52% Women s or girls blouses, shirts and shirt-blouses 14 18 2.19% 83.28% 21.24% Jerseys, pullovers, cardigans, waistcoats and similar articles, knitted or crocheted T-shirts, singlets and other vests, knitted or crocheted 37 34 0.28% 1.50% 0.74% 30 39 0.33% 3.76% 1.55% 1 Leading exporters by product groups are presented in Appendix, item 3 Analysis of goods and services with export potential. 14

Product groups Rank in the world export in 2009 Rank in the world export in 2010 Share in the world export in 2010 Share in the export of the leading world exporter in 2010 to 2001 Share in the export of the leading world exporter in 2010 1 Women's or girls' suits, ensembles, jackets, blazers, 32 28 0.36% 1.48% 0.67% dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear), knitted or crocheted Trunks, suit-cases, vanity-cases, executive-cases, 32 32 0.10% 0.58% 0.22% brief-cases, school satchels, spectacle cases, binocular cases, camera cases, musical instrument cases, gun cases, holsters and similar containers; travelling bags, insulated food bags Articles of apparel and clothing accessories, of 48 48 0.06% 0.08% 0.20% leather or of composition leather Footwear with outer soles of rubber, plastics, 33 36 0.21% 1.05% 0.95% leather or composition leather and uppers of leather; Parts of footwear (including uppers, whether or not 16 18 1.29% 17.51% 4.78% attached to soles other than outer soles); removable in-soles, heel cushions and similar articles, gaiters, leggings and similar articles and parts thereof Other footwear 9 22 0.56% 8.13% 0.97% Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials. 33 34 0.13% 0.57% 0.31% Presented data show that in 2010 the best ranking among world exporters has the product group Women s or girls overcoats, car-coats, capes cloaks, anoraks (including skijackets), wind-cheaters, wind-jackets and similar articles other than those of heading 6204, Women s or girls blouses, shirts and shirt-blouses, knitted or crocheted and Parts of footwear (including uppers, whether or not attached to soles other than outer soles); removable in-soles, heel cushions and similar articles, gaiters, leggings and similar articles and parts thereof. The latter two product groups hold leading positions in the share of Bulgaria in world exports (respectively 2,19% and 1,29%). Among the most successful product groups on international markets are goods with both high and low added value. The product groups women's or girls' suits and men s or boys, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear) are among the product groups with the largest export volume. Huge demand and respective supply of this type of commodities determine their more unfavourable ranking among the analysed products, regardless of their higher added value. Changes in the export volume of analyzed commodities over the studied ten-year period are not unidirectional. The most significant growth in exports in 2010 compared to 2001 is observed in product groups Women s or girls suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear), knitted or crocheted and Women s or girls overcoats, car-coats, capes cloaks, anoraks (including ski-jackets), wind-cheaters, wind-jackets and similar articles 15

other than those of heading 6204, while the group Other footwear records the most significant decrease in export volumes (respectively, the greatest loss of positions in the ranking of world exporters). Both at the beginning and at the end of the examined ten-year period the smallest share in world exports is registered by product group Articles of apparel and clothing accessories, of leather or of composition leather (also accounting for the worst ranking of Bulgaria among world exporters). It should be concluded therefore that products from the analyzed group do not answer the demand and preferences of consumers from different foreign trade partner-countries of Bulgaria. SMEs in sector Manufacture of wearing apparel, including leather apparel, tanning of leather The above presented data on the analyzed product groups relate to all companies in the sector and not only to SMEs. The lack of sufficient statistical information prevents determining the share of the export of SMEs in the export of analysed product groups. Certain orientation is provided by the results obtained from the company survey carried out in the period 31 October 28 November 2011. Companies in the sample declare that their main exports in 2010 include swimwear, underwear, overcoats, women s and men s ready-to-wear clothing, footwear. Nearly 93% of the interviewed managers of SMEs consider that the companies have sufficient production capacity for the manufacture of export goods. Even part of the companies, still not exporting, but willing to, declare such capacity. In 96% of surveyed companies the management teams have the will to export the manufactured products. Due to the profile of surveyed companies, they export finished products with more specific qualities (according the offered classifications raw materials, semimanufactured goods and finished products) with high level of processing and respectively high added value. It can be assumed that this is the niche, where SMEs might have greater success in exports. The above conclusion is further confirmed by the fact that managers of interviewed SMEs consider high technology level and qualification of personnel of small and medium enterprises factors of crucial (decisive) importance for the export success, which are the main prerequisites for the creation of high value added products. COMPETITIVENESS OF THE EXPORT OF GOODS ON FOREIGN MARKETS The main markets of the analysed product groups in sector Manufacture of wearing apparel, including leather apparel, tanning of leather are presented hereinafter and they are determined on the basis of data on the Bulgarian export of each product group. All quantity data are contained in Annex 4 Competitiveness of exports of goods on foreign markets to the present strategy. 16

Women's or girls' suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear) o Main markets are Germany, France and Italy. o The main product in this group with the largest export to the leading market Germany is Women's or girls' trousers, breeches, of cotton (not of cut corduroy, of denim or knitted or crocheted and excl. industrial and occupational clothing, bib and brace overalls, briefs and tracksuit bottoms), i.e. product with higher added value. o Main competitors on the leading market are China and Turkey, being among the leading manufacturers worldwide, with established traditions in the manufacture of this product. o The significant trade balance deficit of Germany shows dependence on imports, a factor enhancing additionally the importance of the German market for the Bulgarian manufacturers. Men s and boys suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear) o Main markets are Germany, Italy and Greece. o The main product in this group with the largest export to the leading market Germany is Men's or boys' suits of textile materials, knitted or crocheted, of wool or fine animal hair (excl. tracksuits, ski suits and swimwear). o Main competitors on the leading market are again China and Turkey. o The growing trade balance deficit of Germany (by end of examined period) contributes to increasing the attractiveness of this export destination for the Bulgarian manufacturers. Overcoats, car-coats, capes cloaks, anoraks (including ski-jackets), wind-cheaters, wind-jackets and similar articles other than those of heading 6204 o Main markets are Italy and Germany. o The main product in this group with the largest export to the leading market Italy is Women's or girls' anoraks, jackets and similar articles, of synthetic fibres (not knitted or crocheted and excl. suits, ensembles, jacket, blazers, trousers and ski ensembles and swimwear) a product with high level of manufacturing in Bulgaria. o Main competitors on the leading market are China (one of the biggest and established manufacturers worldwide) and Romania. o The increasing trade balance deficit along with the growing share of Bulgarian imports on the Italian market determine it as important and perspective destination for the Bulgarian manufacturers. Women s or girls blouses, shirts and shirt-blouses, knitted or crocheted o The main market of Bulgaria is Greece. o The main product in this group with the largest export to the leading market Greece is Women's or girls blouses, shirts and shirt-blouses, knitted or crocheted (excl. singlets and jackets). o Main competitors on the leading market are Macedonia and Italy. 17

o Although the Greek market is not characterised by high level of dependence on imports of the examined product group, Bulgaria is the main importer there, suggesting that the efforts of the Bulgarian manufacturers should be aimed at strengthening the strong market positions of Bulgaria. Jerseys, pullovers, cardigans, waistcoats and similar articles, knitted or crocheted o Main markets are again Germany and Italy, followed by Spain. o The main product in this group with the largest export to the leading market of Italy is Men s or boy s jerseys, pullovers, cardigans, waistcoats and similar articles, of wool, knitted or crocheted (excl. jerseys and pullovers, containing >=50% with article weight >=600 g, and quilted jackets, a product with high level of processing in Bulgaria. o Main competitors on the leading market are China (one of the biggest and established manufacturers worldwide) and Tunisia. o The increasing total imports of the examined product group in Italy, along with declining exports over the analysed period, make the Italian market perspective for the Bulgarian manufacturers. T-shirts and singlets and other vests, knitted or crocheted o Main markets are Germany, Greece and Italy. o Our main competitors on the leading market are Turkey, Bangladesh and China, which are among the leading manufacturers worldwide, with established traditions in the production of this type of products. o Bulgaria ranks 10 th among the main suppliers of T-shirts and singlets, knitted and crocheted on the German market and in 2010 the Bulgarian import accounts for 1,52% of total imports of Germany. The increasing trade balance of Germany shows strong dependence on imports of the examined product group. From this perspective, the German market is perspective for the Bulgarian manufacturers and more efforts should be invested in promoting national production with view to increasing our market share. Women's or girls' suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear), knitted or crocheted o Main markets are again Germany, Greece and Italy. o The main product in this group with the largest export to the leading market of Greece is Women's or girls' skirts of synthetic fibres, knitted or crocheted (excl. divided skirts) a product with high level of processing in Bulgaria. o Our main competitors on the leading market are Italy and Spain. o The increasing trade balance deficit of Greece, along with Bulgaria s ranking among the leading suppliers of the analysed product group on the Greek market, determines its primary importance and good perspectives for the Bulgarian manufacturers. Trunks, suit-cases, vanity-cases, executive-cases, brief-cases, school satchels, spectacle cases, binocular cases, camera cases, musical instrument cases, gun cases, holsters and similar containers; travelling bags, insulated food bags 18

o The main market of Bulgaria is Italy. It is only on this market that we maintain our market share in 2009 and 2010, while shares on the French, German, Belgium and Romanian market decreased in 2010 compared to 2009. o The main product in this product group with highest export of the leading market Italy is Handbags, whether or not with shoulder straps, incl. those without handle, with outer surface of plastic sheeting. o Main competitors on the leading market are China and France. o Both imports and exports of Italy of Trunks, suit-cases, vanity-cases, executive-cases, brief-cases, school satchels, spectacle cases, binocular cases, camera cases, musical instrument cases, gun cases, holsters and similar containers; travelling bags, insulated food bags register growth in 2010 compared to 2006. The growth of imports (24.73%) exceeds export (19,58%) which makes the Italian market promising for the Bulgarian producers. Articles of apparel and clothing accessories, of leather or of composition leather o The main market of Bulgaria is again Italy. o The main product in this product groups with the largest export on the leading market Italy is Belts and bandoliers with or without buckles, of leather or of composition leather. o Main competitors on the leading market are China and India. Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of leather o The main market of Bulgaria is Italy, followed by Hungary. o The main product of this product group with the largest export to the leading market Italy is Women s and girl s footwear with outer soles of rubber, plastics, leather or composition leather and uppers of leather, with insole of length 24 cm or more (excl. those covering the ankle, with a protective metal toecap; or a base platform of wood). o Our main competitors on the leading market are China and Romania. o The increasing total volume of imports of the analysed product group in Italy over the studied period, along with the small share of the Bulgarian import in the total Italian import in 2010, determines the high level of perspective of this market for the Bulgarian manufacturers. Parts of footwear (including uppers, whether or not attached to soles other than outer soles); removable in-soles, heel cushions and similar articles, gaiters, leggings and similar articles and parts thereof o Main markets of Bulgaria are Italy, Romania and Greece. o The main product of this product group with the largest export to the leading market Italy is Footwear uppers and parts thereof (other than stiffeners) product with low level of manufacturing in Bulgaria. o Our main competitors on the leading market are Tunisia and Romania. o The increasing total volume of imports of the analysed product group in Italy over the studied period, along with the small share of the Bulgarian import in 19

Other footwear the total Italian import in 2010, determines the high level of perspective of this market for the Bulgarian manufacturers. o The main market of Bulgaria is again Italy, followed by Hungary. o The main product of this product group with the largest export to the leading market Italy is Footwear with uppers of leather or composition leather (excl. those with outer soles of rubber, plastics, leather or composition leather, and orthopaedic shoes) product with high level of processing in Bulgaria. o Our main competitors on the leading market are China and Romania. o The increasing total volume of imports of the analysed product group in Italy, along with the increasing share of the Bulgarian import over the examined period, determining the high level of perspective of this market for the Bulgarian manufacturers. Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials o The main market of Bulgaria is again Italy. o The main product of this product group with the largest export to the leading market Italy is Slippers and other house shoe with outer soles of rubber and uppers of textile materials (excl. sports footwear, tennis shoes, basketball shoes, training shoes and the like). o Main competitors on the leading market are China and Vietnam, leading manufacturers worldwide, with established traditions in production. o The increased share of the Bulgarian import in Italy in 2010 compared to 2009, along with the registered growth of total imports of the examined product group on the Italian market, show that this market is perspective for the Bulgarian export. Traditional markets for sector Manufacture of wearing apparel, including leather apparel; tanning of leather : Traditional markets for the goods produced by sector Manufacture of wearing apparel, including leather apparel; tanning of leather are the EU countries, mainly Greece, Germany, Italy, Spain, and France. Germany, Italy, France and Greece are traditional markets for the products of the sector. Germany, Italy, Spain and France are in top 10 of the biggest consumers worldwide, an argument in favour of their selection for priority target markets of the main product groups in sector Manufacture of wearing apparel, including leather apparel; tanning of leather. Markets with development potential for sector Manufacture of wearing apparel, including leather apparel; tanning of leather : The markets of the EU countries rank first among the potential markets where the Bulgarian products are traded at present and will be traded in future as well. Other markets with big potential are the East Asian markets and the markets of USA and Canada. 20

CONCLUSIONS: Data on our main markets in the EU show that the export of analyzed product groups is focused mainly on the markets of Italy and Germany both markets are characterized by huge number of consumers, substantiating their perspective from the point of view of the Bulgarian manufacturers. Regarding the predominating part of the analyzed product groups, the main competitors of Bulgaria are China and Turkey, i.e. among our main competitors are big world manufacturers with established traditions, with possibility to use a number of advantages from viewpoints of export, for example cheap workforce (respectively, lower cost end products) and economies of scale. Another important competitor is Romania, due to similar production characteristics and development possibilities with this country. Bulgaria usually ranks among the top importers on the Greek market, which is due mainly to the relatively smaller scale of the market, its geographic proximity to Bulgaria, and the established relationships between the two countries. As a whole, the volume of Bulgaria s export to non-eu countries is quite smaller compared to that of our EU competitors, ranking usually Bulgaria to rear position among the main suppliers. The main reason for working CMT and not developing own collections (trademarks) is the lack of state policy and support for the participation in fairs and shows in order to demonstrate own collections and impose Bulgarian trademarks. The development of own trademark is costly process, time-, funds and human resource consuming. A number of years are necessary in order to establish a trademark on the market and to conquer stable market positions, resulting in profits for the manufacturer. Imposing a particular trademark on the international market means not only to develop a collection, but also serious advertising, including: the organisation of fashion-shows on world platforms, attraction of celebrities for the product advertising, aggressive advertising via all channels (leading world fashion magazines, TVs, etc.). The Bulgarian manufacturers do not dispose of free financial resources to be entirely designed for the development and imposing of own collections. Moreover, they have small production capacity and are not able to meet big orders. Therefore, at present it is more profitable for the Bulgarian manufacturers to work as sub-contractors for leading world manufacturers. The predominating micro, small and medium-size enterprises in the sector would difficultly compete with already imposed world trademarks on foreign markets. Estimates of development by 2015 are prepared for each of the analyzed product groups. Simulations of the trend lay on establishing the analytical form of the function through which regularities in the development of exports of each product group in 2001-2010 are expressed, and estimating the values of the parameters of the function used. In modeling exports, linear or logarithmic regression is used depending on the regularities manifested in the output period. Regressions are calculated by using the values for each year, not just in the first and last year of the period. The obtained results are presented on the following figure. 21

Prognosis for the development of exports by product groups until 2015 350000 300000 250000 200000 150000 100000 50000 Women's or girls' suits Men s or boys suits Women s or girls overcoats Women s or girls blouses Jerseys, pullovers, cardigans T-shirts, singlets and other vests Women's or girls' suits, knitted or crocheted Trunks, suit-cases Wear apparel and clothing accessories of leather Footwear with uppers of leather Parts of footwear Other footwear Footwear with uppers of textile materials. 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: International Trade Centre and own calculations 22

SMEs in sector Manufacture of wearing apparel, including leather apparel; tanning of leather The available information for making informed management decisions for supporting SMEs on perspective markets is extremely low. All analysis made for different product groups and markets will remain just an intellectual exercise if no way is found in the future, including through clearly formulated requirements to the NSI, for providing the necessary information. However, data from the survey of SMEs do not contradict to the analysed priority export destinations the main markets of the companies included in the survey are in EU countries. Main competitors of the interviewed SMEs are companies from China, Romania, Turkey, Italy and France. The main advantages of the EU competitors are related to two principle aspects: first, the production process itself - low prices of competitors products (according to 88% of the respondents) and higher productivity of the competitors; second, the support by the state for export orientated policy - in the range from more general answers to concrete examples. All listed advantages of the competitors should be considered as deficits for the Bulgarian exporters. The competitiveness of the Bulgarian wearing apparel is determined also by the fact that most of the companies in the sector, according to the interviewed representatives of companies with export potential, have clear and well grounded export strategy. Unfavourable factors, leading to lower competitiveness and more limited possibilities for export realization is the low developed research and development activity, the lack of local raw materials, international certificates and own trademark. The findings and conclusions give grounds to expect that in the next five years the Bulgarian export of wearing apparel, including leather apparel; tanning of leather, manufactured by SMEs will grow, although slowly, and at the beginning of the period it will reach the 2009 level, while at the end of the five-year period exports of Bulgarian SMEs in the sector are expected to exceed 1,6 billion BGN. 23

EXPORT PRIORITY PRODUCT GROUPS IN THE SECTOR AND MAIN MARKETS The analysis of product groups in sector Manufacture of wearing apparel, including leather apparel; tanning of leather allows determining the leading product groups with export priority and the concrete markets. The selection is made on the basis of the following criteria: share in the export of the sector, increasing export in the period 2001 2010, share on the global market and concentration of SMEs in the sub-sector. The graphs interpret the data for the Bulgarian export in 2010, presented in detail in the Appendix to the Export Strategy. Data used are taken from the International Trade Centre (www.intracen.org). For each of the selected product groups, the main market in 2010 in the EU and out of the EU, the main suppliers and their market share are shown below. Women's or girls' suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear) Main EU market GERMANY Main non-eu market CANADA 50.37% 2.55% 12.43% Bulgaria Others Turkey China 34.65% 24

Men s and boys suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear) Main EU market GERMANY Main non-eu market TURKEY 2.97% 2.69% 49.82% 10.90% 26.05% 10.26% Bulgaria Other Bangladesh Turkey China 45.04% 12.38% 29.86% 10.03% Bulgaria Others Sri Lanka China Bangladesh Overcoats, car-coats, capes cloaks, anoraks (including ski-jackets), wind-cheaters, wind-jackets and similar articles other than those of heading 6204 Main EU market ITALY Main non-eu market SERBIA 20.85% Others 3.98% 4.41% France 11.33% Bulgaria 55.80% Romania China 25

Women s or girls blouses, shirts and shirt-blouses, knitted or crocheted Main EU market GREECE Main non-eu market USA 0.03% 34.22% 9.03% 13.98% 18.19% 24.55% Bulgaria Others Cambodia Indonesia Vietnam China Women's or girls' suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear), knitted or crocheted Main EU market GREECE Main non-eu market USA 37.82% Others 6.97% 11.38% 13.91% 21.25% 8.67% Germany China Spain Bulgaria Italy 26

Parts of footwear (including uppers, whether or not attached to soles other than outer soles); removable in-soles, heel cushions and similar articles, gaiters, leggings and similar articles and parts thereof Main EU market ITALY Main non-eu market Belarus It is obvious from the graphs above, that the Bulgarian export of sector Manufacture of wearing apparel, including leather apparel, tanning of leather is almost entirely designed for the European Union, as our main markets are Germany, Italy and Greece. This puts us in a strong dependence on the dynamics of markets in a small number of importer-countries and any more serious shock and shrinkage in consumption in these markets affects extremely negatively the national manufacturers. We have slightly bigger market shares in these countries, which for various product groups vary from 2,5% to 39%, as our best positions are in the groups of knitted and crocheted clothing. The Bulgarian presence on non-eu markets is almost negligible. Possible measures for promoting the export to existing and entering new markets would include: Preparing reports on the condition of respective markets and studies of the consumption of certain products; Support for the participation of foreign visitors (manufacturers and consumers) to Bulgarian exhibitions and fairs; Support for the participation of SMEs in the sector in international and national fairs and exhibitions where the leading manufacturers and importers take part, such as: Footwear fair, Riva del Garda, Italy, The fairs in Düsseldorf and Munich, Germany, PREMIERE VISION, Paris, MICAM footwear and leather articles, Milan; the fairs in Guangzhou and Shanghai (leather and footwear), China; Development and implementation of annual programme of fairs and exhibitions, which are important for manufacturers in the sector; 27