Ministry of economy Association of Apparel and Textile Exporters in Bulgaria Association of the Companies of the Light Industry Branch Chamber of the Sewing Industry Bulgarian Branch Union of the Knitwear industry National association of producer associations Scientific and Technical Union for Textiles, apparel and Furs Producer Association for disabled people Bulgarian Association for Textile and Clothing Branch Union of the Woolen, Textile and Silk Industry SECTOR DEVELOPMENT STRATEGY PREMIANA BULGARIA APPAREL PRODUCTION IN BULGARIA Sofia, 2004 Supported in the framework of the German and Bulgarian Technical Co-operation.
Dear Ladies and Gentlemen, The present development strategy of the apparel industry in Bulgaria is a joint work of the Ministry of Economy who initiated the process and the relevant associations for apparel and textile. We represent a sector of outstanding importance for the Bulgarian economy as a whole, in terms of increase in value, import - export balance as well as employment. At the same time we have well understood that the process of globalization, the advanced integration of Bulgaria in the international business community throws a substantial challenge on all stakeholders. Like many other countries, from Great Britain to Turkey sector development strategies have been developed and are under implementation. Bulgaria catches up with these developments. A successful implementation of the strategy will require a strong commitment of actors on all levels: the corporate level, the level of associations as well as on the level of politics. The associations have actively through a coordination group participated in the design of the study. Yet participation of our members of national and international experts is crucial for the success. The branch is not watching this process. The branch and that is the companies, the managers and the many employees have to understand that this is of high concern. Without the companies the Government can not do much and with Government many efforts of companies are not as successful as they could be given a sound and constructive cooperation. The strategy therefore, is also an attempt to bundle and streamline activities, to form powerful alliances by directing efforts in the same direction. The Consultative Soviet that supports this initiative as well as the Ministry of Economy are vital for success. You have in front of you the final version of the Strategy. That means it was discussed and coordinated among all the interested parties within the framework of the Coordination Group and Consultative Soviet. Written statements, containing opinions and recommendations were received by the Ministry of Finance, Ministry of Labour and Social Policy, Ministry of Education and Science, Bulgarian SME Promotion Agency, as well as by the relevant Vice Ministers in the Ministry of Economy. The strategy was supported also during the two additional extended discussions held with sector companies and experts participation. The suggestions and recommendations done are taken into consideration and respectively noted down in the present document. The document was officially endorsed on the Consultative Soviet, held on December 17 th, 2004. This meeting marks in practice the start of the work on the proposed strategic objectives and action plan. It is clear that we have to constantly upgrade this strategy. But visible action and concrete and measurable activities need to start as soon as possible.. The Branch associations undertake to make the implementation a major part in their work on the forthcoming years. As mediators between companies and Government, between national and international bodies, they are committed to contribute to a successful implementation. We would like to invite everybody who is concerned about the future development of our sector to participate in the forthcoming efforts that is opened with the presentation of this strategic document. Further, we would like to express our thanks to the Governments of Bulgaria and 2
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Consulting Team Weis Consulting Assoc. GmbH Mathias Brandt Unternehmen. Komunizieren. IC-Industrieconsult Ltd. Main contractor of the assignment by GTZ GmbH Germany Manager Wolfgang Weis Project Co-ordinator Mathias Brandt Project management on the Bulgarian side, coordination and moderation of the Consultative Soviet and the Co-ordination Group Managing Director Vasil Radoynovski Ass. Prof., Dr. Dimitar Tenchev Marketing and Strategic management expert Manager of Tenchev Consult Evgeni Evgeniev Emil Delev Tsvetomir Tsanov Researcher at European University Institute, Florence, Italy; PhD candidate at Central European University, Budapest, Hungary Certified Management Consultant; Managing Director of Delev Consult Ltd. PhD candidate in International Management at the International Economic Relations Department of the University for National and World Economy 5
Overview 1 APPROACH FOR DESIGN OF THE STUDY...8 2 KEY FINDINGS AND RECOMMENDATIONS...9 2.1 Sector background 2004...9 2.2 The view point of companies...10 3 CHAPTER II Strengths and Weaknesses...11 3.1 MICROLEVEL...11 3.1.1 Strengths...11 3.1.2 Weaknesses...12 3.2 MEZOLEVEL...13 3.2.1 Strengths...13 3.2.2 Weaknesses...13 3.3 MACROLEVEL...14 3.3.1 Strengths...14 3.3.2 Weaknesses...14 3.4 OPPORTUNITIES AND THREATS...15 3.4.1 Opportunities...15 3.4.2 Threats...16 4 CHAPTER III STRATEGIC OBJECTIVES...16 4.1 MICRO LEVEL...17 4.1.1 Goals...17 4.1.2 RECOMMENDATION FOR ACTION...18 4.2 MEZO LEVEL...19 4.2.1 Goals...19 4.2.2 RECOMMENDATIONS FOR ACTION...20 4.3 MACROLEVEL...22 4.3.1 Goals...22 4.3.2 RECOMMENDATIONS FOR ACTION...23 5 ANNEXES...24 5.1 Annex 1 Sector Analysis...25 1 Part I Micro level - the Companies...25 1.1 General data...25 1.2 Characteristics of the questionnaire sample...27 1.3 Age of the enterprises...27 1.4 Experience of the management staff...28 1.5 Size of the enterprises...28 1.6 Markets and Customers...29 1.6.1 Export...29 1.6.2 Main foreign trade partners and dependence on the main customers...31 1.6.3 Intermediaries in the contacts with the foreign partners....32 1.6.4 Own shops in Bulgaria and abroad...33 1.6.5 Production and Quality...34 1.6.6 Staff...40 6
1.6.7 Financing and Investments...42 1.6.8 Obstacles for the development of the companies in the branch...44 1.6.9 Estimation of the relative share of the grey economy in the branch...45 1.6.10 Estimation of the export support from state...46 1.6.11 Estimation of the export support from the branch unions...46 2 Part II Mezo Level...48 2.1 Profile of institutions (Science, R&D, Trade promotion, design)...48 2.1.1 Research and Development...48 2.1.2 Human Resources, education and qualification...49 2.1.3 Financing...51 2.1.4 Business development services...55 2.1.5 Domestic Fairs and exhibitions with brief profile...64 2.1.6 Associations with brief profile...67 3 Part III, Macroeconomic analysis of the textile and clothing industry...71 3.1 Analysis of domestic market...71 3.1.1 Private and public consumers...71 3.1.2 Price situation in Bulgaria...72 3.1.3 Key features of distribution chains...74 3.2 Analysis of selected foreign markets...74 3.2.1 CEE Textile and apparel Industry:...75 3.2.2 Poland...76 3.2.3 HUNGARY...79 3.2.4 The Czech Republic...82 3.2.5 European Union (Germany, Austria, Greece, Italy England, France)...82 3.2.6 United States of America...91 3.2.7 Others (Turkey, China, Russia, Romania)...94 3.3 Market structure in Bulgaria...105 3.3.1 Foreign direct investments in the sector in Bulgaria...105 3.3.2 Sector Import Development since 2000...106 3.3.3 Sector Export Development since 2000...108 3.3.4 Production of sector since 2000...110 3.3.5 Share of sector in the industrial sector output...110 3.3.6 Development of employment...111 3.3.7 Regional Structure of Apparel Manufacturers...113 3.3.8 Supply with raw materials...114 3.4 Legal Framework...116 3.4.1 General national regulations...116 3.4.2 Labour and social security legislation and measures....117 3.4.3 Tax legislation and measures....118 3.4.4 Internal market regulations...118 7
1 APPROACH FOR DESIGN OF THE STUDY PREMIANA BULGARIA is a joint initiative of associations, unions and branch organizations with the Ministry of Economy. The initiative started in February 2004 with the inauguration of the Consultative Soviet for the development of the sector. This year the strategy will address only the development of the apparel industry. An extension for the textile industry is planned for 2005. The work is supported by German Technical Cooperation (GTZ) in the framework of the Economy and Employment Promotion in Bulgaria programme, based on an agreement between the Governments of Bulgaria and Germany. The following main tasks of the sector strategy have been agreed upon in February 2004: Identification of bottlenecks and threats to the Bulgarian Apparel Sector Identification of opportunities for development Improvement of the horizontal and vertical communication in the sector The design of this draft was accompanied by a series of meetings of a Coordination group involving members of all of the above-mentioned associations of the textile and apparel industry and of other main stakeholders. A list of the members of the Coordination group please see page 3. The Ministry of Economy also took part in all meetings. The Coordination Group constantly discussed and revised all findings of the sector analysis and strategy development and monitored progress in 6 meetings since February 2004. To initiate, improve and maintain a constant dialogue between important decision makers of the public and private sector, a special non-official body was established, the so called Consultative Soviet. During the phase of designing the strategy it will meet three times. Later it should meet twice a year, for example on the occasion of important National fairs (like BGate). It is supposed to monitor progress and short comings of the sector strategy. All members are given the task to implement as far as the specific institution is concerned the implementation. At the same time the members will take care that all stipulations of the strategy are blended into the policies of the concerned institutions: Members are: 1) Chairman: Vice minister of Economy Valentin Parvanov 2) One representative of each association, member of the Coordination group 3) Ministry of Education 4) Ministry of Industry 5) Ministry of Finance 6) Ministry for Labour and Social Policy 7) Bulgarian Trade Promotion Agency 8) Investment Agency 9) Technical University of Sofia 10) Academy for Fine Arts 11) Union Podkrepa 12) Union KNCB 8
13) National Agency for Vocational Education and Training 14) 3 representatives from companies from the AT sector 2 KEY FINDINGS AND RECOMMENDATIONS 2.1 Sector background 2004 The predominant part of the apparel producing companies in the country are small and medium-sized enterprises with not more than 250 employees. According to the National Statistic Institute (NSI) 95 percent of the companies in the sector are SMEs as of 2000. The data from the market research carried out for the purposes of the current strategy show highest concentration of companies ensuring work to 100-150 employees at maximum. The majority of the companies are Sole Proprietors and Limited Liability Companies, which have been established during the last 15 years and have gained between 10 and 15 years of experience. There also exists a considerable number of Joint Stock Companies, most of which are successors of the privatized big former state enterprises. In practice the property in the sector is fully private. Statistical information regarding the total number of the apparel producing enterprises is contradictory and hardly comparable. According to National Social Security Institute (NSSI) data there are about 1.200 companies, specialised in the production of apparel, including leather, as of 2003 (code 18 of the National Classifier of the Economic Activities). According to the National Statistics Institutes BULSTAT (NSI) register the number of companies dealing with the production of apparel reaches several thousand without any distinction being made of how many of the companies actually carry out the declared scope of activities. NSI also estimates a total of more than 4000 companies involved in production of textiles and textile products in 2003 (722 textile producing companies including knitwear (Code 17.00) and respectively 3.598 companies under code 18.00 (apparel production including leather). According to the Ministry of Economy the number of apparel producing companies in the country is about 3 000 for the period 2000 2001. Experts and producers from the sector dealing with a big number of local contractors estimate a number of actually operating apparel producing companies of about 2 500. In line with the same estimations at least half of the mentioned number of companies is small enterprises, working as sub-contractors or suppliers for particular orders with an inconstant number of employees and big fluctuations of the capital flow, which makes them vulnerable to any market instability. According to NSI data the number of employees in the production of apparel and textile in 2003 varies approximately between 165000 and 170000. Traditionally the peak of the employment is marked in the first several months of the year, which is defined by the seasonal distribution of the production. According to the Premjana market research during the last 2-3 years the number of employees has risen with about 10 percent per year. The quoted estimation confirms the data from the national statistics, which point out similar data for the whole sub-sector. Cumulated Foreign Direct Investments (FDI) for Bulgaria amount in the period 1998 until June 2004 to about 6,6 billion USD. Out of these its 210 million USD that have been invested by foreign companies in the textile and apparel sector. That makes 3,3 percent. Still the textile sector ranks at 8 th position among Bulgaria s branches concerning this indicator. The investment mainly comes from few big investors amongst them: Miroglio Group 9
(Italy), Rollmann and Partners (Germany), Bulsafil (Italy), ADF (France), Vesticonfex (Portugal), Mazer Holding (Turkey), Demo-Bulgaria (Greece), etc.). On the other hand, the sector became one of the major exporting forces in the country with a share of more than 20 percent of the country s total exports. Figures indicate a share of 22.7 percent in 2003 compared to 22.2% in 2002 and less than 15% in mid 90 s. Again as in the previous years textile and apparel exports alone rose with more than 20 percent compared to the year before. The main exporting market of the Bulgarian textile production are the countries of the European Union with a share of more than 80 percent in the last few years, where the major positions are held by Greece (mostly knitted apparel exports) and respectively by Germany and Italy (mostly woven apparel exports). In the majority of cases the increase in exports to the countries mentioned is driven by the presence of the foreign investors and their local production including sub-contracting. The good exporting positions of the sector are considered to be particularly threatened by the Chinese official membership in the WTO and the upcoming abolishment of all kind of quota restrictions to the global textile trade as of 01 January 2005. From this date onward the WTO Agreement on textile will no longer be in force and all the currently existing quotas for textile import in the EU, USA and Canada, etc. will be abolished. The exporters from the smaller countries suppliers of textile and apparel, including Bulgaria, will have to compete on their traditional markets with producers like China and India. Local producers fear that Bulgaria s domestic and international markets will be lost in several years. Various initiatives are underway to work on international agreements to extend this entering into force deadline to the end of 2007 or to place additional obstacles to Chinese exports based on customer s demands. The Bulgarian branch associations as well as the Government have also supported these initiatives. Even if the sector is one of the major employers in the country in 2003 on average (about 6% of the total workforce) the level of average wages in the sector is considered relatively low. As per the study undertaken for the purposes of the present strategy almost 65 percent of the inquired companies declared an average wage (AW) in the range of 220 to 300 BGN. In the same time in 27 percent of the companies the AW is far below the average for the country and lies between 120 and 220 BGN. The companies with the highest AW produce previously their own production, using the customer s design nevertheless. According to NSI data the average wage in the whole textile and apparel sector in 2003 amounted to 176.7 BGN per month. There are varying and contradicting estimations concerning the grey market economy. Statements of companies interviewed indicate that the grey market holds a share between 30 to 50 percent. In terms of employment this market section is considerable in so far as it offers job opportunities (very low paid) to people who would have no income otherwise. This applies in particular to southern Bulgaria. As a whole the grey economy as well as the illegal trade and unfair business practices (Tax evasion, illicit employment, smuggling) are considered as one of the major internal problems of the local textile industry. The branch productivity is according to data from the European Union one of the lowest in Europe. This is only to some extend because of technology but to a considerable extend to poor workflow organisation. 2.2 The view point of companies An in-depth- analysis carried out while designing this strategy has revealed some crucial trends and findings that are overwhelmingly considered as relevant for the whole sector: 10
The predominant part of the companies has a discernible export orientation which has been getting stronger during the past few years. A considerable part of the companies in the sector are in a very strong dependence on 1-2 foreign customers. The strong orientation toward the use of trade intermediaries, more specifically of foreign companies representations in Bulgaria, restricts the opportunities for carrying out flexible market policy and leads to the strong dependence on particular key customers. The companies declare willingness for unification with the aim of performing joint marketing and distribution but practically such structures are still only isolated cases. The considerably high relative share of the work in different forms of CM production and with design defined by the customer decreases the added value that is formed in the sector and exposes the producers in Bulgaria to the exclusively price-based competition. This creates great risks for the sustainable development of the sector in and makes it dependent mainly on the low labour price in Bulgaria at the present moment. There are a very limited number of companies that posses own trade marks (expert estimations indicate less than 5% of all companies). Nevertheless, the inquired companies as per the present study pay strong attention to trade marks 43.2 percent of them have registered own trade marks. Apparently the respondents are among the most active firms on the market. There are very few producers that are ISO 9001 certified - barely 1 percent of all textile and apparel companies in the country (a total of 48 firms 32 of them apparel producers). The smaller companies cannot afford the expenses related to the successful elaboration and implementation of a quality management system. The quality certificate is viewed primarily as a pre-condition for successful export to the foreign markets and the Western European markets in particular Turkey and EU are the main sources for materials for the sewing industry. The Bulgarian suppliers of materials come third after Turkey and EU as a result of the broken relations between the sewing and textile industry in Bulgaria There is a lack of strategic planning in the branch. More than one third of the inquired companies are planning their activities only up to 3 months forward. The main problems of the inquired companies are in the field of acquiring and keeping of qualified personnel and in regard of the unfair competition. 3 CHAPTER II Strengths and Weaknesses 3.1 MICROLEVEL 3.1.1 Strengths The apparel industry is one of the main contributors to the export revenues and is a major employer in the Bulgarian economy 11
3.1.2 Weaknesses Over 95 percent of the firms within the industry are Small and Medium Sized Enterprises (SMEs), which have high flexibility to react to clients demands for quick delivery and respond to new standards for quality and organization of production Favourable geographic position in terms of market access to the EU and proximity to the main suppliers of qualitative textile fabrics and yarn from Italy and Turkey. 100 percent private initiative and property Long-term partnership with Western firms, thus gained experience in the organization of production, turning the design into patterns, Development of production on hangers for the European Market Comparatively good language and computer skills European mentality and understanding for doing business High commitment to fulfilling customers' needs Competitive labour costs Fairly good technological equipment Low productivity rates because of the lack of specialization The majority of the companies are extremely dependent by very few major customers. A relatively small share of the companies in the sector has a registered trade mark. Steady orientation towards the use of trade intermediaries, more specifically of foreign companies representations in Bulgaria. Low motivation of the workers and middle managers (salaries too low, not attractive to new people) Insufficient quality of the higher and middle management in terms of control, work group management, marketing, distribution, total quality management) Insufficient investment in human resource management Necessity for investment in improving safety and health conditions for labour Poor planning capacity, lack of strategic thinking at management level Missing organisation of trade on the Bulgarian market; no distribution system Weak logistics capacity and sourcing capacity, materials not available just in time Interrupted links with the local producers of raw materials It is estimated that some 800 companies from a total of 2500 are operating in a serious and in a dedicated way. That is to say that these companies consider the apparel industry as their future. There are about 1.600 companies which are currently rather observing the market than actively going and exploring their opportunities. one third is considered to concentrate on the 12
3.2 MEZOLEVEL 3.2.1 Strengths 3.2.2 Weaknesses quick time and is expected to close down activities, once the CMT train moves out of Bulgaria Due to inappropriate financing opportunities it is difficult for many producers to obtain and pre-finance the necessary raw materials for large contracts (credit lines are in principle available, problems with double book-keeping and dealing with grey economy) It is difficult to bridge over operation financing for production. Banks do not understand the specific short-term capital needs of producers. Incurred inter-company debts distorts trust building International contact and business relation management is not sufficient. The capacities of the Bulgarian branch are insufficiently used Distribution channels are insufficiently organized. This applies to the lack of specialized wholesalers as well as retailers. Associations are existing, but companies do not support associations enough through active information and cooperation. Insufficient support of companies in organizing joint business trips, business delegations or international business contact management The marketing of most companies is at a poor level. Marketing Departments in most of the Bulgarian companies basically do not exist Lack of Design departments Lack of investment in standardizations, such as ISO 9000 and ISO 14000 Low efficiency levels Fashion products of high quality and established domestic brands on foreign markets are missing Interviews conducted clearly state that following are the main obstacles for branch development: Lack of qualified staff, unfair competition, weaknesses in financing (credits), corruption and bureaucracy, small domestic market. Low productivity as a result of poor workflow management Clearly visible tendency for establishment of sector associations High number of educational institutions The Fair system is insufficiently organized. There are a lot of B2C (Business to consumers) fairs. Bulgaria needs specialized B2B (Business to Business) Fairs in both apparel and textile sub sector 13
3.3 MACROLEVEL 3.3.1 Strengths 3.3.2 Weaknesses Despite of a fairly large number of training schools, the supply of well qualified workers who are practice-oriented is not sufficient. The educational system does not properly react to the need of companies. This applies in particular to low and middle management jobs like apparel technicians, logistics, quality management, distribution, sales and marketing, design and samplers The bargaining procedures for wages are not so efficient Some of the currently existing branch structures in the sector are just paper tigers or remaining from communist times Lack of legislative basis for representatives of the branch associations No cluster policies (only ideas, no concept!) Insufficient supply (purchase) and distribution networks 'Subcontracting' creates a poor image Lack of service centres for the sector Lack of testing and certification centres Lack of needs-oriented vocational training centres Lack of sufficient co-ordination with the international branch associations The national legislation with respect to the regulation practice in the sector is harmonised to a large extent with that of the EU Low probability of drastic changes in the existing regulations in short term and medium term in the light of the forthcoming membership in the EU Liberal international trade regime as regards production of textile goods, which have contributed to the improvement of the market access and the competitiveness of the sector. Insufficient tax and labour preferences from the business view point Inconsistent and non-coordinated efforts of the business and the government with regard to the provision of wider legally stipulated preferences for the sector Late common position and misunderstanding of the situation by the business and lack of concrete measures toward the forthcoming liberalisation of the world textile trade as of 1 January 2005 Insufficient and ineffective utilisation and application of the possibilities for state aids, envisaged in the Bulgarian legislation and consistent with the internationally agreed regulations and disciplines. Probability for additional changes in the labour and social security regulations related to the future membership in the EU hampering the employers 14
Illegal imports Poor domestic infrastructure Too many and too expensive changes in terms of labour safety, social security, etc Red-tape bureaucracy, delays in VAT reimbursement in particular and customs Missing commitment of the Government concerning the preference in origin High customs duties with Russia Lack of national support policy (fairs, national image of products, international trade fostering, innovation funds, trade policy, etc.) More then 80 percent of the companies consider this support to be too weak. To a lesser extent, this also applies to the associations. Lack of information concerning changes in the context of EU accession Lack of fair competition framework Lack of correspondence within the National statistics data (classification is different) 3.4 OPPORTUNITIES AND THREATS In the section below the opportunities and threats for the sector are given as a whole since they are the same for all levels (micro, mezo and macro) and would affect directly the development of the companies at first place, i.e. the micro level, and thence the mezo and macro level accordingly. 3.4.1 Opportunities The predominantly EU oriented export, stated by the inquired companies, as well as the data for moderate growth of the annual turnover and the number of the employed implies the existence of resources which could be utilized with a view to the future strategic development of the producers from the sector. Intensified transfer of capital, know-how, technologies and design to Bulgaria with the approach of EU membership Increased market demand of apparel in small series Increased purchasing power of the domestic market Re-gain of the Russian market Active prudent regulation of the domestic market (observing the rules of the game) EU policy towards the Bulgarian apparel sector The unification of enterprises with the aim of performing joint marketing and distribution may result in better exploitation of domestic and international markets. Only 10.8 percent of the inquired companies have declared they participate in such kind of unifications. The predominant part of them (83.8 percent) declares their inclination to participate in such a structure. In the field of supply, as well as in marketing and distribution, 15
3.4.2 Threats most companies demonstrate willingness for co-operation with other companies. The same applies to sales and marketing. Elimination of the quotas for textile imports in 2005 within the WTO Immediate loss of competitiveness of Bulgarian firms in the low customer segments due to unlimited Chinese imports into the EU and the US. Continuing trend for decrease of the domestic market share Massive Firm liquidations due to the cut of the CMT orders Dependency ratio increase by the foreign buyers Related social loss because of many losing their jobs in the sector Deterioration of the image of the sector Dumping imports from China Imports of faked brands 4 CHAPTER III STRATEGIC OBJECTIVES The significant growth of international competition, due to liberalization of global trade in the last 10 years, has been one of the most important problems that companies and governments face nowadays in the apparel Industry. The situation of the New World Economic order proves that the possibility for being competitive on the global market depends not just on competition with inexpensive labour and flexible exchange rate regulations. It depends on a wide range of factors producing good quality at reasonable prices and reacting with a high degree of flexibility. For Bulgaria, in particular, a competitive advantage that has helped the sector in the past fifteen years to gain a considerable strength and position among the light industry sectors in Bulgaria will disappear rather sooner than later: the inexpensive labour. In most European countries the apparel sector has undergone substantial changes. They have reacted with national strategies for maintaining or improving the industry of their countries. Similar activities have also been launched by the European Union 1 The overall 2010 Vision of the Strategy for the Development of the Bulgarian Apparel Industry has been set to be the following: The Bulgarian apparel sector is developing dynamically and selling endproducts according to needs and trends of global markets Whereas, Dynamically developing sector stands for: Supporting and fostering improvement and innovation in the work flow, technologies and product design, implementation of modern management and marketing techniques well qualified and motivated work force 1 See for example: High level Group on Textiles, http://europa.eu.int/comm/enterprise/textile/high_level_group.htm 16
intensified inter-firm networks increasing the overall competitiveness Selling end-products : increasing number of domestic companies manufacture products under international brands (full production line); establishment and manufacturing increasingly products with own brands on national and international markets large number of small and medium sized subcontractors working for limited, but powerful group of domestic and international producers of end-products. Selling on the global market : diversification of markets and client structure. Our market is the world development and promotion of Made in Bulgaria products identification and specialisation of market niches with higher added value. The upgrading of domestic firms in line with this vision is the most important goal to accomplish this long-term objective. In this light, firm upgrading would be effective if there is a focus on Mid-term (until 2007) and Long-term (2010) horizon. The Micro level Vision looks at four categories of firm upgrading: product development, organization of production, logistics and managerial and marketing sales The Mezo level vision observes improvements in the vertical and horizontal coordination within the sector: between firms; between firms and sector associations; between sector associations and national government; and between domestic and internationally recognized sector associations, The Macro level objective targets the establishment of favourable business environment and a conducive fostering policy for triggering and speeding up the process of multi level innovation. 4.1 MICRO LEVEL 4.1.1 Goals 4.1.1.1 Long-term 1. Implementation of efficient organization of production ensuring quality and flexibility of the production process. 2. Technological upgrading leading to higher productivity, flexibility and quality. 3. Increasing capacity for development and production of end products that are competitive on the global market. 4. Introduction of marketing as a leading management function. 5. Implementation of modern management focused on strategic development. 17
4.1.1.2 Mid-term 1. Diversification of markets and client structure. Less dependency on concentrated 1-2 foreign buyers (increase of the number of major firm clients); 2. Increased capacity for production of small series (at least 100 companies); 3. Increase of own investment in marketing and technology ( percent share of reinvested profit); 4. Less dependency on foreign buyers offering production designs (increase of the number of firms with own design departments); 5. Introduction of international quality, social and environmental standards (increase of the number of firms that are certified and have introduced international quality management systems); 6. Improvement of the distribution for the domestic market; 7. Decrease of the CM and increase of the CMT and own production ( percent share decrease of full and semi subcontracting relative to direct exports) aimed at providing opportunities for reinvestment; 8. Strengthening of the capacity for product development (Number of firms producing end-products); 9. Productivity increase of the Bulgarian apparel companies with 10 percent per year on average (index of productivity); 10. Compact number of domestic large companies, specialized in offering own products and entering into partnerships with flexible local subcontractors; (increased number of networks between large firm and local subcontractors); 11. Specialization in higher value added export of products and products in small series with short terms of delivery (10 percent annual increase) 12. Increased investments in Human resource development 4.1.2 RECOMMENDATION FOR ACTION 1. Increase of apparel firms web-pages maintaining and permanent updating (at least 50 percent of the active firms should have a maintained web page); 2. Organization of joint participation in Trade Fairs (number of participation in international fairs), co-operation for joint appearance on foreign markets; 3. Co-operation between different producers or creation of special organisations - trade chains (number of existing trade chains increases); 4. Joining international distribution networks (number of local firms entering international distribution channels); 18
4.2 MEZO LEVEL 4.2.1 Goals 5. Co-operation for optimization of the size and the price of the delivery of raw materials (number of local partnerships); 6. Introduction of production quality standards in the companies, social and other internationally acknowledged standards; 7. Introduction of EU environmental and ecologic production standards in the companies; 8. Assistance for the companies (via the provision of information and other services) for the introduction of new technologies and know-how (percent share of investment of the total amount of investment in the branch), including: o Establishment of design workshops in the companies, equipped with CAD-CAM systems; o Dynamic introduction of moder computerised systems related to finances, communication, marketing, data base management, etc, 9. Establishment of domestic brands on foreign markets (the number of brands increases every year with 20 percent); 10. Participation of companies at B2B fairs, managers visiting B2B fairs and organisation of business delegations; 11. Establishment of marketing departments in 30 percent of the companies 12. Popularisation among the companies of the advantages of the specialisation in production of apparel transported on hangers 4.2.1.1 Long-term 1. Optimisation of the relations between the companies from the sector as well as between them and their suppliers. (Creation of networks) 2. Improvement of the communication and the co-operation between the companies from the sector and the providers of business-related services. 3. Increasing the efficiency of the branch organisations as representatives of the common interests of the business in the dialogue with the Government, as well as with the international business organisations 4. Optimisation of the educational and vocational qualification system in correspondence with the needs of the companies. In particular introduction of new job profiles like: sewing machine mechanics, material purchaser agent, product managers, designers, Cut technicians, workflow manager) 4.2.1.2 Mid-term 1. Promotion of B2B Fairs (number of participants); 2. Development of clusters (establishment of three local clusters). 3. Establishment of R&D centres specialized in technologies, design and production (number of centres); 19
4. Development of active relations between the firms, the R&D centres and the Universities (number of partnerships) 5. Co-operation with other sectors (e.g. apparel and tourism, etc.) in order to promote complementary products. 6. Increase of the legitimacy of local branch associations (increase of the membership in each association); 7. Fostered co-operation and common actions of local branch associations (number of common initiatives); 8. Promoting of loyal and fair business relations and practices within the sector (Code of Conduct) 9. Increase of the role of the business in the regulation of the sector; 10. Establishment of working relations with foreign branch organizations (twinning projects) 11. Development of local vocational centres for training in leading practices - design, construction, middle management, strategic management (number of centres); 4.2.2 RECOMMENDATIONS FOR ACTION 1. The associations jointly with the Government (foreign trade representations at the embassies) should develop a strategy how to enter emerging neighbour markets such; 2. Establishment of a Design and Fashion Support Centre (DFSC) 2 within or through the branch organisations as a unit at mezo level providing services and information to the companies on fashion trends and novelties, aimed at supporting the development of the Bulgarian designers and promoting the Made in Bulgaria logo. Its main tasks should be: o helping local designer schools to get into contact with foreign schools and start cooperation; o introducing courses for designers of local apparel firms to improve their work; o organizing annual competitions for local designers and sending the winners to famous fashion houses in Italy and France; o supporting financially the development of Bulgarian Fashion Houses with a group of designers who receive orders from Bulgarian apparel firms. o incentives could be given to local firms if they decide to hire foreign established designers because this is a chance for local designers to learn. o organisation of fashion exhibitions in Bulgaria and invitation of journalists from prestigious fashion magazines; o sending Bulgarian companies to international fashion exhibitions (covering 30% of the participation fees); o organisation of fashion seminars and seminars on current fashion trends at the main markets. 2 The status of DFSC, PSC and MSC needs to be discussed with the branch organisations. 20
3. Establishment of a Productivity Support Centre (PSC) within or through the branch organisations for rendering services regarding the organisation of work, business re-engineering and introduction of management information systems at company level.. Its main tasks should be: o To render assistance and expert support (also by the inclusion of leading foreign consultants) on the issues of improving the production organisation and business reengineering of the processes at company level; o To render assistance and expert support in the introduction of management information systems in the companies; o To organise specialised courses and trainings directed toward the management of the companies for improvement of the production organisation, increase of the productivity and of the company competitiveness. 4. Establishment of a Marketing Support Centre (MSC) within or through the branch organisations as a unit at mezo level providing marketing services to the companies and aimed at improving the marketing of the Bulgarian apparel companies. Its main tasks should be: o organising marketing courses for apparel firms; o preparing brochures, catalogues of Bulgarian apparel firms to be presented to international apparel fairs and fashion shows; o preparing marketing reports for foreign markets to serve the apparel firms; o searching for and development of marketing niches for local enterprises. 5. Introduction of a National Innovation award with a substantial price award. 6. Setting up and maintenance of a specialised data base for market research and marketing at the main trading markets. The predominant part of companies interviewed (83.8 percent) declares their inclination to participate in such a structure. 7. Setting up and maintenance of a register of well-trained free specialists in the field of apparel production and/or graduating students (CV profiles should follow international standards). This register should serve the goal to make local expertise quicker and better available for the branch... 8. Organisation of internationally oriented applied courses and practices (in co-operation with the companies) through international partnership with a view to ensuring national and international internships of the best students/pupils from the existing educational institutions. 9. The foundations should be laid for the development of a need oriented specialized A & C training and vocational qualification centre including the design and/or update of professional profiles. 10. Participation of the branch associations jointly with the functional committees of the schools/universities in discussions and elaboration of school courses and/or curricula of A&C specialties and majors. (incl. assistance in modernization of 21
material and training equipment, development of course tasks, etc.) 11. Preparation of a common web- site for the sector providing information on the protection of intellectual property provisionstrade mark registration, rules of origin,, information about financing and credit programmes, structural funds (preaccession funds) attraction of foreign investments, export promotion, foreign markets access and other) common Internet portal (BG level). 12. Establishment of Council for non-forensic agreements in cases of intra- branch conflicts (mediation). 13. Establishment of common conditions/ agreements on contracting and supplying for the sector. 14. Lobbying for the common interests of the sector. 15. Cooperation with international apparel organizations (e.g., EURATEX), similar foreign branch associations (twinning), etc.. 4.3 MACROLEVEL 4.3.1 Goals 4.3.1.1 Long-term 1. Efficient state policy for ensuring fair and loyal business environment in the domestic market; 2. Development state policy, in line with the international regulations, aimed strengthening the international competitiveness of the Bulgarian companies from the sector. 4.3.1.2 Mid-term 1. Optimization of the taxation and social security legislation and policy in order to improve the long-term competitiveness of the sector on the global market. 2. Elaboration of a tailored textile sector development strategy improving in between the raw material base of the sector 3. Government support for the development of at least 3 clusters 4. Improvement of the trade policy in particular for branding Bulgarian products, fair participation, etc. 5. Support for establishment of improved marketing systems and associations. (National design and innovation prize, fair and fashion shows, distribution network) 6. Re-negotiations of special regulations for transition period with the EU (the third countries of origin raw material problem) 7. Government support for facilitated market access to selected markets (Russia, transport problems with Serbia) 8. Promotion by the Government of MADE in BULGARIA for the apparel sector 22
4.3.2 RECOMMENDATIONS FOR ACTION 1. Development of user friendly information system with clear information on existing legislation and bodies competent for enforcement, support of corresponding initiative of High level group. (EU level) 2. Organisation of training and additional qualification concerning foreign market access (jointly with Bulgaria Invest Agency, Bulgarian SME Promotion Agency) 3. Identification and optimal utilisation of bi- and multilateral donor programmes 4. More active utilization of pre-accession funds 5. According to the EU High Level group recommendation number 7 3 concerning bilateral relations the Government should ask for and perform consultations with the EC in cases of breach of the market balance within the EU and decrease of the Bulgarian export to the EU. 6. Optimisation of the control of customs authorities through specialised qualification and building laboratories for control on the physical and chemical indicators during the import; 7. Optimisation of the control on the observation of national tax and social regulations; 8. Efficient control of the retail market, elimination of unfair competition practices; 9. Joint elaboration of a concept along with the Ministry of Finance and the Ministry of Economy regarding the flexible tax system for the sector including: VAT rate, profit reinvested in modernization, human resources development, etc.; 10. Optimisation of the control on the attempts for import and/or distribution of fake brands to the domestic market, by the utilisation of the existing legislative mechanisms for protection and by working for the improvement of their application and functioning 11. Optimisation of the work on the implementation of the existing regulations mainly with a view to the protection of the domestic market reduction of the unregulated import and decrease of the share of the illegal produce on the market; 12. The Government in a joint effort with the branch associations of the A&T sector should have developed a concept for the establishment of three clusters; 13. Elaboration of a concept for specialised management training for the middle management staff in the sector leading to improved middle management and practically oriented and well qualified work force; 14. Studying the possibilities (concept) for the establishment of a specialised fund for support to the modernisation of the sector with a view to: o Improving productivity; 3 http://europa.eu.int/comm/enterprise/textile/high_level_group.htm 23
o Transfer of know-how and marketing of new products and technologies; o Stimulating innovation; o Using professional consultant services for improving the work flow, marketing, financing, logistics, human resources development, accounting and control,etc.. 15. Establishment of an export promotion fund; 16. Studying the possibilities (feasibility study) for sustainable development of silk industry in relation to the establishment of a Textile Cluster Bulgarian Silk in the region of Rousse; 17. Elaboration of a concept for obtaining short-term preferences for the sector through the creation and marketing of the MADE in BULGARIA logo with the coordinated efforts and the joint work of representatives of the sector associations, branch unions and the government. 18. Efficient utilisation of the opportunities and the mechanisms for protection against dumped imports in relation to the textile products trade liberalisation as of 01 January 2005; 19. Efficient utilisation of the opportunities, instruments and the offered resources from the Labour Conditions Fund at the Ministry of Labour and Social Policy. 5 ANNEXES Annex 1: Annex 2: Sector Analysis Action Plan 24
5.1 Annex 1 Sector Analysis 1 Part I Micro level - the Companies 1.1 General data The predominant part of the apparel producing companies in the country is small and medium-sized enterprises with not more than 250 employees. According to the National Statistic Institute 95 percent of the companies in the sector are SMEs as of 2000. The data from the inquiry research carried out for the purposes of the current strategy show highest concentration of companies ensuring work to 100-150 employees at maximum. The majority of the companies are Sole Proprietors and Limited Liability Companies, which have been established during the last 15 years and have gained between 10 and 15 years of experience. There also exists a considerable number of Joint Stock Companies, most of which are successors of the already privatized big former state enterprises. In practice the property in the sector is fully private. The information regarding the total number of the apparel producing enterprises is contradictory and hardly comparable. After data from the NSI about 1.200 companies, specialised in the production of apparel, including leather, exist as of 2003 (code 18 of the National Classifier of the Economic Activities). According to the NSI s BULSTAT register the number of the companies dealing with the production of apparel reaches several thousand without any distinction being made of how many of the companies actually carry out the declared scope of activities. According to Ministry of Economy the number of apparel producing companies in the country is about 3 000 for the period 2000 2001. Experts and producers from the sector dealing with a big number of local contractors estimate the number of the actually operating companies in the sector at the present moment is about 2 500. In line with the same estimations at least half of the mentioned number of companies is small enterprises, working as sub-contractors or suppliers for particular orders with an inconstant number of employees and big fluctuations of the capital flow, which makes them vulnerable to any market instability. After data from the NSI the number of employees in the production of apparel and textile in 2003 varies approximately between 165 000 and 170 000. Traditionally the peak of the employment is marked in the first several months of the year, which is defined by the seasonal distribution of the production. According to data from the studied selection of companies a rise of the number of the employed with about 10 percent per year can be observed during the last 2-3 years. The mentioned estimation affirms the data from the national statistics, which point out similar data for the whole sub-sector. Table 1 Employees in the production of apparel and textile 4 2003 2003 Month Jan Febr. June Nov. Dec. Avera ge Change as compared to 2002 4 Source: NSI 25