The Ministry of Economy of the SlovakRepublic

The Current Position of the Textile and Clothing Industry of the SlovakRepublic

in theEU25

in the area of restructuring and

increasing competitiveness

November 2004

Position of the textile and clothing industry: capacity and structure

Part one of this document describes the place of the textile and clothing industry within the industry and economy of Slovakia; it focuses on the economic, social and environmental aspects of development, innovation potential, research and development, regional aspects of the sectors, and the role of small and medium-sized enterprises (SMEs) in them.

Part two identifies the position of the textile and clothing industry within the industry and economy of the European Union, as well as current trends in these EU sectors in terms of restructuring and increasing competitiveness.

Part three assesses the competitiveness of the textile and clothing industry in Slovakia against its counterparts in the EU and other rivals.

Part four provides a SWOT analysis of the textile and clothing industry in Slovakia, focusing on sustainable development, innovation development, and regional development.

Part five outlines the development prospects for the textile and clothing industry in Slovakia with regard to the SWOT analysis, and the likely course of development in the EU. This leads to conclusions on restructuring the sectors and increasing their competitiveness.

Part six presents a set of industrial-policy support tools for restructuring and increasing competitiveness in Slovakia's textile and clothing industry.

Part seven recommends support tools for restructuring and increasing competitiveness in Slovakia's textile and clothing industry.

This project was drafted using not only standard information sources (information bulletins of the Ministry of Economy SR, results of related specialist documents), but also a wide range of sources that compare the results of the textile and clothing industry in the EU (source: EURATEX), and especially the conclusions from activities and initiatives for the EU textile and clothing industry carried out at the level of EURATEX, the European Commission and the European Parliament.

  1. The place of the textile and clothing industry within the industry and economy of Slovakia (with emphasis on the economic, social and environmental aspects of development, innovation potential, research and development, regional aspects of the sectors, and the role of SMEs in them)

The textile and clothing industry is generally one of the oldest sectors of the manufacturing industry. It is one of the less technologically-demanding sectors, being among those which emerge in a country during the first phases of industrialisation. Countries at a higher level of development seek to transfer traditional production of textiles and clothing to countries at a lower level of development. They export basic production (yarns, fabrics, knitted clothing, linen, simple ready-made clothing) for outward processing transactions (OTP) in countries with lower labour costs. At the same time, they themselves focus on more complex ranges (technical textiles, luxury clothing) and thus remain a step ahead of newly-industrialised countries. Through modernisation, they are reducing production costs, improving output quality, speeding up deliveries, and phasing in processes of globalisation and intersectoral cooperation. They also rely on their real comparative advantages (workforce skills, research, innovation, sales), and exploit a wide base of modern production in machinery and chemicals.

The textile and clothing industry has a sharply declining importance in the manufacturing industry of developed countries. This is a consequence of the more dynamic development of modern industrial sectors, as well as the pace of development in the textile and clothing industry - under pressure from consumption development (the importance of textiles and clothing in the consumer basket is falling), demographic development (the populations of developed countries are stagnating) and trends in global commerce (especially the growth of textile and clothing imports from developing countries).

The first industrial textile mills in Slovakia emerged more than 100 years ago and others appeared in the 1930s and 1940s. The first clothing factories were established in the interwar period. During Slovakia's industrialisation, these sectors acquired massive development capacities and had a significant social function.

The number of people employed in the textile and clothing industry in Slovakia rose by 17,100 between 1970 and 1985, to stand at 74,300. This growth was closely connected with the fact that textiles and, even more so, clothing were increasingly traded with the then Soviet Union in exchange for oil, gas, iron ore and grain,and that there was saturation of demand for local textiles and clothing on the closed domestic market. The standing of the sectors also supported the modernisation of the most important technologies for spinning mills, weaving mills, finishing mills, and knitted and clothing production. Between 1986 and 1989, the state invested SKK 830 million in the development of the textile and clothing industry.

During the 1980's, the output of the textile and clothing industry as a share of overall industrial output stabilised at 4.7% (textile 3.2%, clothing 1.5%). Employment in these sectors as a share of overall employment fluctuated between 9.3% and 9.8%.

The most critical stage in the development of Slovakia's textile and clothing industry came between 1989 and 1993. The volume of textile and clothing production for 1993 was only 46.5% of the level for 1989. Production of cotton yarn, for example, fell by 50.2%, that of woollen fabrics by45.2%, knitted tops by 57.6% and clothing from fabrics by30.5%.

Textile and clothing output grew from 1994 until 2002. In 2003, it registered a fall of 3.1% year-on-year.

Between 1989 and 1993, the number of people employed in the textile and clothing industry fell by 16,500, and between 1994 and 2003 by almost 11,000. The textile industry is the more problematic in terms of employment development. Between 1989 and 2003, it lost 31,300 employees, while the number of people employed in the clothing industry rose by 4,200 (at companies employing more than 20 people).

The development of the textile and clothing industry in Slovakia as a share of industrial production and employment over the period 1989 to 2003 is shown in the table below (data in %):

Production / Employment
1989 / 1996 / 2000 / 2003 / 1989 / 1996 / 2000 / 2003
Textile and clothing industry / 4.7 / 3.1 / 2.5 / 1.9 / 9.3 / 10.4 / 10.5 / 10.4
Of which - textile / 3.2 / 1.7 / 1.2 / 1.0 / 6.3 / 4.5 / 4.0 / 4.1
- clothing / 1.5 / 1.4 / 1.3 / 0.9 / 3.0 / 5.9 / 6.5 / 6.3

Since 1989, the textile and clothing industry in Slovakia - in line with tendencies in developed countries - has had a falling share of overall industrial output. On the other hand, the textile and clothing industry has maintained a stable share of employment in industry even though its absolute employment level is falling. As the table shows, it is the textile sector that has been losing jobs while the clothing sector has increased its workforce.

The development of the textile and clothing industry in Slovakia over the last five years is shown in the table below (the data is from companies employing more than 20 people; source: the Statistical Office of the SlovakRepublic):

Indicator / Sector / Measure / 1999 / 2000 / 2001 / 2002 / 2003
Sales / Textile and clothing industry / million SKK / 16 540 / 16 980 / 18 883 / 19 518 / 18 911
-textile / 7 943 / 8 104 / 9 400 / 10 332 / 9 809
-clothing / 8 597 / 8 876 / 9 483 / 9 187 / 9 102
Employees / Textile and clothing industry / People / 46 975 / 45 937 / 46 613 / 46 553 / 44 753
-textile / 18 232 / 17 092 / 17 607 / 18 535 / 17 545
-clothing / 28 744 / 28 845 / 29 005 / 28 018 / 27 208
Labour productivity
from sales / Textile and clothing industry / thousand SKK / 352 / 370 / 405 / 419 / 423
-textile / 436 / 474 / 534 / 557 / 559
-clothing / 299 / 308 / 327 / 328 / 335
Profit or loss / Textile and clothing industry / million SKK / -123 / 208 / 446 / 910 / -932
-textile / -268 / 11 / 349 / 239 / 28
-clothing / 145 / 197 / 97 / 671 / -960
Added value / Textile and clothing industry / million SKK / 7 366 / 7 657 / 8 696 / 8 689 / 8 242
-textile / 2 986 / 3 067 / 3 617 / 3 830 / 3 536
-clothing / 4 380 / 4 590 / 5 079 / 4 859 / 4 706
Investments / Textile and clothing industry / thousand SKK/
employee / 15.0 / 26.1 / 29.7 / 24.0 / 33.0
-textile / 19.2 / 40.9 / 49.2 / 42.5 / 34.2
-clothing / 12.2 / 17.3 / 17.9 / 11.8 / 32.2
Proportion of
Added value / Textile and clothing industry / % / 47.8 / 45.1 / 46.1 / 44.5 / 43.6
-textile / 37.6 / 37.8 / 38.5 / 37.1 / 36.0
-clothing / 50.9 / 51.7 / 53.6 / 52.9 / 51.7
Return on
revenues / Textile and clothing industry / % / -0.6 / 1.0 / 2.0 / 3.9 / -4.2
-textile / -2.9 / 0.1 / 3.2 / 2.0 / 0.2
-clothing / 1.4 / 1.9 / 0.9 / 6.0 / -8.8
Average monthly wage / Textile and clothing industry / SKK / employee / 7 409 / 8 178 / 8 855 / 9 227 / 9 620
-textile / 7 692 / 8 603 / 9 452 / 9 903 / 10 368
-clothing / 7 229 / 7 926 / 8 492 / 8 780 / 9 138

Between 1999 and 2003, sales in the textile and clothing industry grew by an average of 3.5% per year. Sales in overall industrial production increased over the same period by an average of 14.2% per year. In the EU15, by comparison, sales in the textile and clothing industry fell by an average of 1.7% per year.

The pace of sales production between 1999 and 2003 was higher in the Slovak textile industry. As a share of production in the textile and clothing industry, textiles accounted for 48% in 1999 and 52% in 2003.

For 2003, sales in Slovakia's textile and clothing industry fell by 3.1% year-on-year. Both sectors, but especially the clothing industry from 2002, suffered negative development in sales.

The employment rate in Slovakia's industrial sector fell between 1999 and 2003 by an average of 1.5% per year.

The development of employment in the textile and clothing industry is not balanced. In clothing production, employment grew between 1999 and 2001, and subsequently decreased. In textiles, employment grew between 2000 and 2002, but fell in 2003 by 5.3% year-on-year (by almost 1,000 people).

Labour productivity in textiles and clothing grew sharply until 2001 and has since stagnated at around the 2002 level.

Textiles made a loss for 1999 and then returned to profit. The clothing sector made a highest-ever profit in 2002 but recorded a loss in 2003. Compared to 2002, the result was worse by SKK 1.6 billion. In 2003, the textile and clothing industry was the only sector of Slovak industry to record a loss. .

For 2003, return on revenues in the textile and clothing industry stood at -4.2 % (0.2% in textiles, -8.8% in clothing). Between 1999 and 2003, return on revenues in the textile and clothing industry was far below that in industry overall.

The proportion of added value in the textile and clothing industry has been falling since 2001. For 2003, it stood at 36.0% in textiles and 51.7% in clothing. The values are significantly higher compared to Slovak industry overall.

Weak points in the textile and clothing industry include the level of average wages, the share of foreign direct investment, and the high share of OTP production in the clothing industry.

For 2003, the average wages in the textile and clothing sectors totalled respectively 63.8% and 56.2% of the average in Slovak industry overall. The level of average wages is lower in these sectors than in any other sector of Slovak industry. A negative development in these sectors is the growth of wages ahead of labour productivity. When between 1999 and 2003 productivity in textiles and clothing grew by an average of 4.8% year-on-year, the average wages increased more quickly by an average of 2 percentage points.

Specific surveys show that companies where foreign capital is present employ 20% of the workforce in Slovakia's textile and clothing industry. These companies account for 18.8% of the sectors' sales. The extent of foreign capital in the textile and clothing industries is significantly lower then in light industry overall. Companies in which there is foreign capital account for 25% of the workforce in light industry and 34% of the sales.

The textile and clothing industry in Slovakia is characterised by a high share of OTP production in the production structure. For 2003, according to sources from the Association of Textile and Clothing Industry in the SlovakRepublic, its share of the textile sector reached 18.1%, and the clothing sector 72.6 %. At the same time, the share of OTP production in the sector's production is increasing (for 2001, 9.5% in textiles, and 60.8% in ready-made clothing).

Most textile and clothing production is exported. In the clothing sector, exports accounted for almost 79% of sales for 2003, and in the textile sector, 61 %. A majority of the exports from these sectors go to EU markets (for 2003, this share was 72%, with Germany receiving 34%, Italy 16%, and Austria 8%). Among the new EU member states, the biggest consumers of Slovak textiles and clothing are the Czech Republic (it received 14% of the total exports for 2003) and Hungary (6%). Of the textile and clothing which Slovakia imported in 2003, 61% came from the EU (Germany 21%, Italy 19%, Austria 7%), and 11% from the Czech Republic. There has also been dynamic growth in such imports from China: in 2003, they accounted for 5.5% of total textile and clothing imports, up by 1.9 percentage points on the previous year.

The trade balance of Slovakia's textile sector is permanently in deficit, while the trade balance of the clothing sector is in surplus. In the EU15, the situation is completely the opposite - textiles have a trade surplus and clothing a deficit.

Slovakia's textile and clothing production includes a disproportionately wide range of standard output. The quality side of production reflects the availability of technical and technological assets. In the textile sector, the technical and technological level is far behind that of the competition. There is, as has been mentioned, insufficient investment in this sector, and the volume of investment has steadily fallen over the last three years. Only the range of wool and silk fabrics has been widened after partial modernisation of technology; it is now at a qualitatively higher level and thus able to compete globally in the given segment of production. The major producers of ready-made clothing use technology at the level of the European average. The problem is having enough of the technology and renewing it. Investments in the sector for 2003 rose sharply in comparison with previous years, but Slovakia's textile and clothing sectors, unlike their rivals, lack highly efficient automation and integrated workplaces for more operations.

For consumption of raw materials, materials and energy, the textile sector is more demanding. As a share of textile turnover, consumption of raw materials, materials and energy accounts for around 46%, while for ready-made clothing the figure is around 30%. The development of consumption of raw materials, materials and energy in relation to turnover has a favourable falling trend in the textile sector, but in clothing, the figures have stagnated at 2001 levels.

In the environmental area, Slovakia's textile and clothing industry has a relatively favourable situation. This is not connected, however, with the introduction of progressive technologies (even though they are a partial solution), but rather the scaling back of several areas of production that harm the environment (production of carpets, ropes, knitted products). Production capacities, especially in textiles, are exploited to a lesser extent and the production of pollutants is therefore lower. The volume of environmental investments within Slovakia's textile and clothing industry has been steadily falling since 2000. In that year, the industry had a level of environmental investment per employee of SKK 742, whereas in 2003, the figure was only SKK 66.

The development of the textile and clothing industry is in sharp contrast to the development of Slovak industry overall. The volume of environmental investment in Slovak industry has grown dynamically - from SKK 2.5 billion in 2001 to SKK 3.3 billion in 2003. This represents investment per employee of SKK 5,700 in 2001, rising to SKK 7,700 in 2003.

On the whole, the intensity of innovation in the textile and clothing industry has fallen sharply, as it has in other sectors of industry. Available sources of information show that the number of innovating companies in Slovakia's textile and clothing industry represents around 6% of the total. This share of innovating companies is 11 percentage points lower than that for manufacturing industry in Slovakia and 29 points lower that for the textile and clothing industry in the EU15.

The level of innovation in the textile and clothing industry in Slovakia is closely connected with the research and development basis of the sectors. In the pre-transformation period, the textile and clothing industry had at its disposal a comprehensive research and development basis and a network of attendant specialist organisations. Today, only the following subjects are involved in research and development in these sectors:

-VÚTCH – Chemitex, s.r.o., based in Žilina (research and development in textiles, textile chemistry and textile ecology, testing and certification services)

-The Institute of Textile Technology, state-owned company (development of textile machines and equipment, automating technology, production of specialised textile machines).

The scope of research and development in both organisations is marked by the undercapitalisation of textile and clothing producers in Slovakia. Modernisation in the sectors takes place more on the basis of technological and technical solutions, organisations and management adopted from foreign companies.

Small and medium-sized enterprises constitute a significant part of Slovakia's textile and clothing industry.

It is estimated that companies with not more than 20 employees employ more than 4,000 people in the textile sector and around 8,000 people in clothing. The profitability of SMEs in these sectors is connected to their lower capital demands (especially in clothing production). Small enterprise in these sectors completes the overall profile of the sectors, especially in the less advanced regions of Slovakia. At the same time, it is at risk from the adjustment of the sectors to the conditions of the single market.

Capacities of the textile and clothing industry in Slovakia are focused above all in the less developed regions. Bratislava, the most developed region, has 6% of the total number of employees in the industry, the region of Western Slovakia has 44%, Eastern Slovakia 27% and Central Slovakia 23%. In the most problematic regions, it is often the case that textile and clothing production offers the only employment opportunities in industry.

  1. The position of the textile and clothing industry within the industry and economy of the EU; current trends in restructuring and in increasing the competitiveness of the EU sectors

The textile and clothing industry has a sharply declining position in the economies of advanced countries. This trend reflects the preferentially dynamic development of modern sectors but also the development in the textile and clothing sectors. For example, turnover of the textile and clothing industry in the EU15 stagnated between 1995 and 2000, and has been steadily falling since. In 2003, the turnover of these sectors in the EU stood at only 95% of its level in 1995. Employment in the textile and clothing industry of the EU15 has been steadily decreasing since 1995. Between 1995 and 2003, the number of employees in these sectors fell by 655,100 people or 25.7%. In the EU15, the position of the textile sector is stronger than that of the clothing sector. For 2003, it accounted for 63.3% (and for 1995, 64.6%) of the combined turnover of the sectors (including the knitting industry), while its share of employment was 55.3 % (for 1995, 53.2 %).