An Overview of Italian Textile Industry - Essay Example

Running head: Italian textile industry: An overview Italian textile industry: An overview s Following a period of rapid growth in the '90s, during which major Italian fashion companies acquired new brands and boutiques like they were going out of style, the current business climate is strictly focused on cost control and improving internal efficiency. (CSC, 2006) The problems facing the Italian textile industry are due to the competition posed by China. Most of the firms are affected by the low labor costs in the Chinese market. The conditions became worse after January 2005 when because of WTO the textile industry became free of restriction. Since then the whole world market has been glutted with the Chinese products. Italian textile manufacturers are eager regarding the market condition. The competition posed by China is not only reducing the profit margins of the Italian textile industry but also effecting the employment conditions in the industry. The leading industries of Italy are the clothing and textile industries. About some 68,000-fashion businesses, majority of, which are small, are located in the country's north side. The revenues come from exports and constitute about sixty percent. The lively combination of productive, creative, and managing activities turns out to be the main point of strength of Italian textile and clothing industry, whose about540,000 employees contribute to roughly 10% of the manufacturing sector's added value. (Made in Italy, 2005) However, the problem is a decrease of turnover of Italy's fashion industry because of the invasion of Chinese products into all of Europe. As a result the sector has been struggling in recent years, losing more than Euro 5.2 billion (US$6.3 billion) in turnover since 2001. The financial decrease has led to the closing of some companies and the sacking of some 90,000 workers. According to Italy's national statistics office, production of clothing and textiles fell by 7 percent, while shoe production decreased by 10 percent, corroborating recent reports that footwear from China is treading at a rapid rate on what used to be a flagship of Italian style. (Italian designers, 2005) In 2003 Italy was the third world's exporter of textile products (about 8% of the total amount), after China and USA, recording a CAGR loss (1995-2003) of roughly 1%. In 2003 among the main clothing exporters the country was placed just behind China. (Made in Italy, 2005) Although the Italian sector is currently facing unprecedented challenges but these challenges can be faced only by innovation. These include the abolition of quantitative restrictions (quotas) which took place on 1st January 2005. These challenges are occurring in a period of marked slowdown in economic activity, which has a significant impact on sectors such as textiles and clothing. Furthermore, at the same time the Euro has shown a significant upward trend against the US dollar. All in all, every segment of textiles and clothing production, from spinning and weaving to garment make-up, has in one way or the other suffered from the impact of the developments of the last few years. (Textiles and clothing sector in the EU-25) The years 2001-2004 have been particularly difficult for the industry. After substantial falls in production and employment in the previous three years, it is estimated that in 2003 production fell by a further 4.4% and employment by 7.1% (EU-25, source: Eurostat). The trade deficit (EU-25) amounted to 29.4 billion in 2003, the trade in textiles reaching a surplus of 3.7 billion and the deficit in clothing 33.1 billion. What Italian companies need is to be flexible, creative, and innovative. Their weapons are professional knowledge and a great sense in luxury. Another opportunity which Italian companies can utilize to their benefit is the size of the companies. The structure of the industry is changing becoming aggressive and difficult to govern. Small companies are able to react with agility and intervene speedily, thinking over and updating the industrial districts. (Menkes, 2005) Still there's one more aspect to regard China as opportunity. China can be viewed as an outsourcing base. For example, Celine, a unit of luxury goods giant LVMH Moet Hennessy Louis Vuitton SA, is manufacturing some handbags in China, including its denim-and-leather Macadam bags, which sell for $500. (Groahmann, 2005) A lot of companies have long outsourced to China and China is for this reasons a big opportunity. The labor costs are much lower while in Italy only 8,000 is needed to establish a company. However, the problem is quality. The opportunity is only if Chinese play a fair game. More control is needed. Smaller companies as the production base can use China. However luxury companies can lose credibility putting the tags with "Made in China." Managing the perception of consumers is harder than it can seem. Price is not the only aspect, which is considered when making a purchase. Italian goods have been always taken for the best quality and unique design. That's the strength of Italian producers, which can be employed. Italy has historical heritage. Chinese cannot suddenly acquire traditions, which have been preserved for centuries. They do not have the Italian feeling and view. (Greeks turn to Chinese) There're two opposing views as to the future perspectives of fashion companies in Europe. Li Edelkoort believes that already the downward price spiral is leading to disaster. Europe will abandon a centuries-old heritage and the industry will end up with bland clothing, limited varieties of textiles and basic prints. Raffaello Napoleone is more positive believing that in the future there will be a sole and dominant culture. "We will be confronted with different strong cultures which will stay in competition, everyone with its own prevailing identity." (Menkes, 2005) The Italian fashion textile industry has a historical impression of innovative and classy products. But the last century saw the strong pillars of the industry shaking due to the competition posed by the cheap products offered by the Chinese textile industry. The paper was aimed at finding out the factors responsible for the decline and to suggest the measures, which can be taken in order to improve the condition of industry. Following were the important factors which were recognized as the key players in the decline of the industry: A) Lack of Innovation and new ideas application. B) Lack of technological updating. C) Lack of investment in the research and development. D) The increment in the value of Euro has also multiplied production cost of the Italian fashion textile products. E) Cheap products from Chinese fashion textile industry. The following strategies can play an important part in the restructuring of the Italian textile industry in order to make it compatible in this era of global trade. A) Innovation and application of new ideas. B) Continuous technological updation and invention. C) Investment and enhancement in the research and development of new ideas. D) Outsourcing to the low waged countries as China. E) Formations of co-operation in order to effectively reach the global market. The Italian companies should compete each other when it comes to the product quality and customer satisfaction but in order to safeguard the interest of the industry as whole co-operation should be developed among the producers in order to practice innovative production form of common product presentation at main events in undertaking Research and Development process. Co-operation in as many fields as possible should be adopted because many of these SMEs are under severe pressure of being thrown out of the business. They can also share supply chain factors in order to reduce the cost. Support services: The technical training institutes in the field of textile should be settled in different regions of the country in order to improve the skills of labors. This will also help in attracting new businesses to the region and country and will help the firms to update and easily capture the high level of competition posed by Chinese industry. Research and development should also be under taken in all such institutes in order improve the innovation process. The courses in these institutions should cover all the aspects of textile and cloth production so that better understanding and co-operation between all the different sectors can be developed. Different support programs should also be offered by the government to improve the skills. At private and government level financial support programs should also be offered in order to provide the declining industry with all the possible support. The outsourcing procedure to other countries is a bit complicated and demands planning before the decision are actually taken. With the enhancement of fashion textile industry at international level the no of producers has also increased. On the other hand the customers are becoming more demanding with regards to quality, cost and fashion and class. This has also given rise to the need of finding new innovative ideas from production process to the improvement in the supply chain. Strategy: Business week offers the following formula for success in doing business with China: Pick partners wisely, Avoid forming ventures with inefficient state-owned enterprises. Search for entrepreneurial companies owned by local governments, or go it alone, insist of management control. Focus on fundamentals. Capitalize on China rapidly becoming a market economy by executing the basics, such as marketing, distribution, and service. Guard know-how; do not hand over state-of-the-art technology just to get an agreement. Aggressively fight theft of intellectual property because China wants to shed its bad reputation in this regard. Fly low, Begin with a series of small ventures rather than big, costly, high-profile projects that often get snarled in bureaucratic red tape and politics. (Business Week, 1997) We can conclude that the Italian industry can, with these forms of co-operation, illustrates effective solutions for the improvement and enforcement of integration of firms, providing ways to overcome some of the most relevant problems facing SMEs: credit access and the expansion into new international markets. The importance of creating "collective" solutions for the problems linked to the small dimension of the firms can amply play an important role. It is also one of the key factors in the creation of an environment that is favorable to the competitive growth of small firms. Programs aimed at local economic development in emerging countries would do well to incorporate pilot projects to stimulate inter-firm Cupertino among SMEs. The creation of innovative products and ideas are the most important step toward the recreation of the Italian textile industry. All the steps discussed above may help nurture a positive local development environment in the Italian fashion textile industry through the active involvement of firms, their associations and local authorities. (Baldoni, Belliti, Miller, Papini, Bertini, 1998) References Area Centro Studi (2005) Made in Italy-Textile / Clothing / Fashion Chain. September http://www.sistemamodaitalia.it/studiericerche/2004_eng.pps#1 Viewed: August 04, 2006 Associated Press, Milan, Italy (2005) Italian designers have competition!July, 26 http://www.hindustantimes.com/news/7242_1442376,00180010.htm Viewed: August 07, 2006 Baldoni, G., Belliti, C., Lee M. Miller, P., Papini, Bertini, S., (1998). Small-Firm Consortia in Italy: An instrument for Economic Development, United Nations Industrial development organization, available http://www.unido.org/userfiles/RussoF/Consortia.pdf Viewed: August 04, 2006 Business Week, "How You can win in China" (May 26, 1997): 65. CSC, (2006). CSC Helps Restyle Italian Fashion IT, retrieved as on February 20, 2006 from http://www.csc.com/features/2006/4.shtml Viewed: August 04, 2006 Groahmann, Karolos (2005) Greeks turn to Chinese retailers. REUTERS. October,10 http://gatton.uky.edu/Faculty/hoytw/610/610reading10-11.pdf Viewed: August 05, 2006 Read More