1

ROMANIA - COUNTRY REPORT

JUNE 2005

This document has been produced with the financial support of the European Community’s BSP2 programme. The views expressed herein are those of the authors and can therefore in no way be taken

to reflect the official opinion of the European Commission

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TABLE OF CONTENT

PAG. GENERAL VIEW ON ROMANIAN LIGHT INDUSTRY 3

1. ANALYSIS OF NATIONAL STATISTICS 6

1.1. TEXTILE SECTOR 6

1.2. LEATHER SECTOR 8

2. NATIONAL QUESTIONNAIRES SURVEY RESULTS 11

2. 1. TEXTILE SECTOR

2.2. LEATHER SECTOR

3. SWOT ANALYSIS OF ROMANIAN LIGHT INDUSTRY

3.1. STRONG POINTS

3.2. WEAK POINTS

11

17

20

20

21

3.3. OPORTUNITIES

3.4. THREATS

4. COMPARISON WITH OTHER COUNTRIES SURVEYED

5. THE EUROPEAN FRAMEWORK: THE EUROPEAN COMMISSION

SUPPORT POLICY AND PROGRAMMES

6. GOVERNMENT PLANS FOR SUPPORTING LIGHT INDUSTRY

7. CONCLUSIONS

21

22

23

24

28

29

3

ROMANIA - COUNTRY REPORT

GENERAL VIEW ON ROMANIAN LIGHT INDUSTRY

The light industry (textiles – clothing – leather / shoes industry) is representing one of the

most important and dynamic sectors of Romanian economy being represented almost all over

the country and contributing in a positive way to Romanian exports.

In 2004, Romanian light industry (textiles – clothing – leather / shoes industry) has realised

the following indicators:

� 5,5 % from GDP;

� 10 % from industrial production volume of Romania;

� 35 % from Romanian export;

� 19 % from Romanian import;

� 20,4 % personnel from industry is working in this field (about 450 000 employees);

� 8900 companies are working in this domain (7211 textiles and 1731 leather);

� 97% from industrial production and 98% from export are realized in the private

sector of light industry.[1]

Romanian light industry is using most of raw materials from import, the added value of its

products is still low and the salaries of its personnel are ones of the lowest; but despite all of

these our light industry is important for the industrial sector, having a positive trend

(beginning with 1996) for production volume – Figure 3 – and a permanent positive

export/import balance – Figure 4.

Figure 1

Romanian Production Structure

2004 Textile

22.3%

Apparel 62.5% Leather &

Shoes 15.2 %

4

Romanian Light Industry Product Destination

Figure 2

Evolution of Romanian Light Industry Production

Figure 3

1989Export

25.80%

Intern74.20%

4207

56364921

7223

3723,5

5000

8170

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1989 1996 2000 2001 2002 2003 2004

mil.

$2004

Export 85.3%

Intern 14.7%

5

Evolution of Light Industry import and export

Figure 4

The raised export value of light industry may be attributed to the following product groups:

� shoes and other accessories;

� textiles and textile goods.

Apparel sector is the most important from the point of view of export value; but as shoe sector

too, is still producing in lohn system (about 70 - 80%).

As export partners, on the first place there are EU 15 countries; in 2003 about 50% of light

industry products have been exported to: Italy, Germany, France, UK and Turkey. In the last

years, Romania has tried to penetrate new markets in the Former Soviet Countries.

Imports have also raised (but they are under export value) due the raw materials necessities

like: cotton, wool, raw hides/skins, chemical fibres and yarns.

In the last years the “champions” are clothes and shoes sectors. They are competitive due to

well skilled personnel with lower salary as in other European countries, modern equipment

and flexibility. Textiles and leather sectors are also in a development period but they still need

more investments funds for modern equipments and ecological

6973

6070

48074050

3342

22291332652

19352623

31353717

4524

5135

0

1000

2000

3000

4000

5000

6000

7000

8000

1989 1996 2000 2001 2002 2003 2004

mil.

$

Export Import

6

1. ANALYSIS OF NATIONAL STATISTICS

1.1. TEXTILE SECTOR ATEROM has collected and analyzed the statistical data concerning the yarn, fabric and clothing imports of Romania coming from more than 25 countries plus the first 15 EU members, for 2001-2004. The tables show information only for the countries that have significant share for Romania.

IMPORT ROMANIA – YARNS AND FABRICS 2001 – 2004 Quantity

Table 1 2001 2002 2003 2004 Country

thousands tons

% thousands tons

% thousands tons

% thousands tons

% 2004/ 2001

Czech Rep. 1,28 0,79 1,15 0,66 1,16 0,63 1,05 0,54 0,82 China 5,58 3,46 6,34 3,62 8,65 4,72 11,46 5,86 2,05 South Korea 3,02 1,87 3,54 2,02 2,40 1,31 1,68 0,86 0,56 Russia 0,90 0,56 0,76 0,43 1,59 0,87 2,15 1,10 2,39 India 0,68 0,42 1,14 0,65 1,43 0,78 1,62 0,83 2,38 Taiwan 1,75 1,09 2,18 1,24 1,76 0,96 1,48 0,75 0,84 Turkey 16,39 10,17 20,64 11,79 26,34 14,37 30,37 15,52 1,85 Hungary 2,68 1,66 1,05 0,60 1,24 0,68 1,56 0,80 0,58 UE (15) 119,95 74,41 128,30 73,27 130,30 71,10 135,00 69,00 1,13 Other 8,97 5,57 10,02 5,72 8,39 4,58 9,27 4,74 1,03 Total Import

161,20 100 175,12 100 183,26 100 195,64 100 1,21

IMPORT ROMANIA – YARNS AND FABRICS 2001 – 2004 Value

Table 2 2001 2002 2003 2004 Country

mill. USD % mill. USD % mill. USD % mill. USD % 2004/ 2001

Czech Rep. 12,4 0,77 12,1 0,67 15,4 0,72 14,0 0,57 1,13 China 14,1 0,88 22,1 1,22 34,0 1,59 51,1 2,09 3,62 South Korea 23,2 1,44 24,3 1,34 22,8 1,07 18,3 0,75 0,79 Russia 2,5 0,16 2,2 0,12 5,4 0,25 7,3 0,30 2,92 India 1,9 0,12 3,9 0,21 6,5 0,31 12,6 0,52 6,63 Taiwan 10,4 0,65 10,9 0,60 9,0 0,42 8,1 0,33 0,78 Turkey 92,0 5,73 136,9 7,53 194,6 9,11 245,7 10,07 2,67 Hungary 11,5 0,72 5,8 0,32 8,3 0,39 15,8 0,65 1,37 UE (15) 1371,7 85,46 1517,9 83,51 1764,8 82,65 1983,0 81,22 1,45 Other 65,4 4,07 81,5 4,48 74,5 3,49 85,5 3,50 1,31 Total Import

1605,1 100 1817,6 100 2135,3 100 2441,4 100 1,52

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Comments regarding the yarn and fabric import: The total import grew in 2004 as compared to 2001 (quantitatively – 1,21, in value – 1,52) The most important supplier was still EU 15 (with a quantitative share of 69% of the total yarn and fabric import in 2004, but it has dropped from 74.41% in 2001); in value the share is larger (81,22% in 2004), therefore the products are more expensive than those coming from other suppliers. Significant growth in 2004 as compared to 2001: The Russian Federation, India, Turkey.

IMPORT ROMANIA – GARMENTS 2001 – 2004 Quantity

Table 3 2001 2002 2003 2004 Country

thousands tons

% thousands tons

% thousands tons

% thousands tons

% 2004/ 2001

Bulgaria 0,23 1,21 0,84 3,29 0,43 1,55 0,16 0,52 0,70 China 5,45 28,69 10,02 39,30 10,89 39,26 13,21 42,90 2,42 Turkey 3,46 18,21 2,98 11,69 4,27 15,39 5,23 16,99 1,51 Hungary 0,76 4,00 0,48 1,88 0,30 1,08 0,31 1,01 0,41 UE (15) 7,50 39,47 8,94 35,06 9,51 34,28 9,09 29,52 1,21 Other 1,60 8,42 2,24 8,78 2,34 8,44 2,79 9,06 1,74 Total 19,00 100 25,50 100 27,74 100 30,79 100 1,62

IMPORT ROMANIA –GARMENTS

2001 – 2004 Value Table 4

2001 2002 2003 2004 Country mill. USD % mill. USD % mill. USD % mill. USD %

2004/ 2001

Bulgaria 0,1 0,06 0,5 0,27 1,3 0,55 2,8 1,03 28,00 China 5,1 3,17 7,5 4,04 10,1 4,26 15,7 5,79 3,08 Turkey 5,9 3,66 8,7 4,68 10,1 4,26 12,3 4,53 2,08 Hungary 9,9 6,15 6,4 3,45 5,1 2,15 8,0 2,95 0,81 UE (15) 131,3 81,50 151,1 81,37 196,0 82,59 200,6 73,94 1,53 Other 8,8 5,46 11,5 6,19 14,7 6,19 31,9 11,76 3,62 Total 161,1 100 185,7 100 237,3 100 271,3 100 1,68

Comments regarding the clothing import: The total import grew in 2004 as compared to 2001 (quantitatively – 1,62, in value – 1,68) The most important supplier in 2001 was EU 15 (with a quantitative share of the total clothing import of 39.47 and a value share of 81.50%).

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In 2004, quantitatively, on the first place came China, with a 42,90% of the total clothing import, as compared to EU 15 which owns 29,52; in value China’s share is only 5,79% as compared to 73,94% of the total clothing import. Significant growth in 2004 as compared to 2001: Turkey.

EXPORT ROMANIA – YARNS AND FABRICS / GARMENTS 2001 – 2004

Table 5 2001 2002 2003 2004 2004/2001 Total

export de:

thousands tons

Mill. USD

thousands tons

Mill. USD

thousands tons

Mill. USD

thousands tons

Mill. USD

thousands tons

Mill. USD

Yarn/

fabrics

36,8 131,5 42,0 158,9 47,3 232,4 51,1 272,1 1,39 2,07

Garments 54,7 828,1 59,4 966,4 58,4 1218,1 57,8 1386,3 1,06 1,67

The yarn, fabric and clothing export still grew in 2004 as compared to 2001.

DOMESTIC PRODUCTION ROMANIA –YARNS AND FABRICS/GARMENTS 2001 – 2004

Table 6

The quantity of yarn and fabric domestic production was in diminution in 2004 as compared to 2001.

1.2. LEATHER SECTOR Leather industry it’s one of tradition and very old known in Romania. As final product for

tanneries, the leather represents a “raw” material for other industries as: footwear (about 62%),

clothes (about 15%), leather goods (about 12%), upholstery and automotive leathers (about

11%). Leather processing is generating, in the same time, by-products applicable for other

fields of activity: protein sources for food, chemical or cosmetically purposes, medical

products, artificial leathers or soles etc.

The most intensive development has taken place in the period 1965 – 1980, for Romanian

leather sector. It had an important economical value in the areas of counties Timis, Sibiu, Cluj,

2001 2002 2003 2004 2004/2001 Domestic Production

of: thousands tons

Bill. ROL

thousands tons

Bill. ROL

thousands tons

Bill. ROL

thousands tons

Bill. ROL

thousands tons

Bill. ROL

Yarn/Fabrics 104,2 10490,3 103,4 12086,6 95,7 14320,9 95,8 16582,1 0,92 1,58

Garments - 54776,0 - 65281,0 - 65672,5 - 78376,0 - 1,43

9

Bihor and in Bucharest. In that period, most of equipments, chemicals and technologies had to

be Romanian and production was directed for internal consumption and for export into the

socialist states.

After 1989, Romanian leather and shoe industry has to compete, in an open concurrential

market, with high performant industries/products all over the world. At the beginning of this

period, the differences between technical and technological level of our leather industry were

about 15 – 20 years, compared with those from developed countries.

In ’90s the internal demands for leather products has decreased continuously, socialist market

has disappeared and the quality and competitively of Romanian products were inferior.

Simultaneously exports and imports of raw and finished products have became free and the

prices of energy resources have raised drastically, producing a decapitalizing process, a lot of

viable companies being closed as the nonprofitables ones.

As a consequence of all internal and external factors, in leather and shoe sector has

developed an industrial restructuring process:

� Nonperforming techniques and equipments have been changed into new ones, modern

and more flexible, there where financial possibilities have existed;

� Reorganisation of technological flow charts and efficient management of working area;

� Modernisation of tanneries, especially in finishing sector;

� Significant changes in raw hides /skins processed by diminishing of internal resources

and raising imports of finished leathers for uppers and leather goods; after 1994, about

80% of shoe production is made in lohn system and the demands of domestic finished

leathers have drastically decreased.

Although, all problems and deficiencies the leather/shoe industry remains an important

industrial sector in Romania; a sector which try to increase its products competitiveness on

the single market. So, in 2004, leather/shoe industry has realised [1]:

- 0.9% from Romanian GDP;

- 5.2% personnel from industry is working in this field;

- 8.9% from Romanian exports;

- 4.5% from Romanian imports;

- 1.6% from Romanian industrial production;

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On international market Romanian leather/shoe industry has an important place, on EU, CSI,

CEFTA and USA markets. From CEECs, Romania is on 1st place regarding shoe exports

to EU market and on 9th place worldwide.

The internal situation of leather/shoe industry, nowadays, is synthetically presented in Table 7

and in Figure 5.

Table 7 Figure 5 Most important leather/shoe area Geographical distribution of tanneries/ shoe in Romania factories in Romania The companies’ structure in leather/shoes field is presented in table 8. From these companies

about 120 are reported as leather companies. This doesn’t means that there are 120 tanneries;

most of them have as activity object “leather processing” but they are processing hides in an

existing tannery [2].

Table 8 Leather/shoes companies’ structure Total light industry Leather/shoe industry TOTAL: 8942 1731 Large size 364 91 Medium size 1352 282 Small size 1897 419 Micro size 5329 939

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2. NATIONAL QUESTIONNAIRES SURVEY RESULTS 2. 1. TEXTILE SECTOR

Questionnaires were sent to 170 textile/clothing companies, answers were received only from 80 companies.

1. Company profile.

1.1 In which sector does your company operate? Number of

companies Mainly textile (spinning/weaving) 21 Mainly clothing (apparel) 59 Total companies 80

1.2 Products sold: Number

of companies

Mainly yarns, fabrics 18 Mainly men’s wear, women’s wear, baby/child wear, sportswear 53 Mainly technical items 5 Mainly knitwear (outwear and underwear) 2 Mainly home textiles, upholstery/curtains/carpets 2 Mainly others (specify) - Total companies 80 1.3 Origin of products sold: Number

of companies

Own Production 68 Traded product (outsourced/import) 12 Total companies 80 1.4 Size

Total companies

- turnover (M euro)

<5

5-20 20-50 >50

Number of companies 19 36 15 10 80 - n. employees

<10 10-50 50-250

>250

Number of companies 5 41 34 80 1.5 Sales (markets)

Number of companies

Mainly Domestic 19 Mainly EU 15 54 Mainly EU new accession countries 2 Mainly Rest of the world 2 Total companies 80

12

2. General Awareness on Competitiveness (please tick your choice) 2.1 Your company’s sales are: In terms of

Quantity (number of companies)

In terms of Value

(number of companies)

- Increasing 27 27 - Decreasing 16 19 - Stable 37 35

2.2 Do you think that the current strengths of your company are sufficient to cope with competition or need change:

Number of companies

- No changes 18 - Minor changes 35 - Major changes 27

Total companies 80 2.3 In the next two years the competitive position of your company will be stronger, weaker or similar to present in your market?

Number of companies

- Stronger 34 - Weaker 14 - Similar 32

Total companies 80 2.4 Who are the most threatening competitors? Number

of companies

Domestic 28 European Union 10 (from newly accessed countries) 29 European Union 15 - South Mediterranean 2 Chinese 48 Other (specify) -

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3. The Chinese issue In recent years Chinese manufacturers substantially increased their market share in European markets. This trend is expected to continue in the next years, facilitated by the complete elimination of the quota system 3.1 Did your company have DIRECT consequences of the recent increase in Chinese competition?

Number of companies

YES 51 NO 29 Total companies 80

3.2 Consequences were: Number

of companies

loss of clients 15 reduction of sales to one or more clients 25 decrease of own prices in order to maintain the same level of sales

26

reduction of quantities and decrease of price in own sales

20

Other (specify): -

3.3 The negative impact on your business was: Number

of companies

very remarkable 3 significant 32 minor 16 Other (specify): -

3.4 In which segment of your clients did your company suffer most the Chinese competition?

Number of companies

Domestic traders (retailers/wholesalers) 13 European (25) traders (importers/wholesaler/retailers) 42 Rest of the world traders 4 Domestic manufacturers (supply chain) 3 European 25 manufacturers (supply chain) 23 Rest of the world manufacturers -

3.5 Which of your products were hit the most by Chinese competition?

Number of companies

Upper range 17 Middle range 29 Lower range 22

14

3.6 What are the strongest competitive factors of the Chinese exporters?

Number of companies

Price 80 Price/quality ratio 11 Customization/Flexibility 4 Scope of product range 23 Other (specify): -

3.7 Do you think that the Chinese manufacturers adopt unfair competitive practices?

Number of companies

Only sometimes 22 Often 25 All Chinese sales are characterized, to some extent, by unfair practices

28

3.8 Do you have evidence of unfair practices? Number of

companies Yes, direct evidence 5 No direct evidence 12 Only Clues 35 Rumours of the market 54 3.9 In your opinion, which kind of unfair commercial practices are adopted by the Chinese?

Number of companies

False custom declarations 28 Unregistered imports/smuggling 23 Dumping 63 Counterfeited products 43 Other (specify) -

3.10 Who are the strongest allies of Chinese products?

Number of companies

Local consumers 35 Those local manufacturers who outsource production in China

21

International brands present in your country (e.g. Benetton, Hugo Boss)

13

Large retailers in your countries 31 Traders (importers/wholesalers) 54 Other (specify ) -

15

3.11 Do the Chinese manufacturers have weak points?

Number of companies

Quality 73 Delivery/service 32 Product design 15 Other (specify ) 3.12 Under the current general conditions, how large is the competitive advantage of Chinese producers in the following factors:

Number of companies

Large (number of companies)

Significant (number of companies

Minor (number of companies

no advantage (number of companies)

Price 74 1 1 Price/Quality ratio

17 33 16 4

Customization 5 13 32 19 Product Range 1 13 31 15 Other( specify ): -

4. The Future 4.1 In the next years the Chinese presence in European markets will:

Number of companies

Increase 56 Remain as today 15 Decrease 9 Total companies 80 4.2 What factor may be effective to counter Chinese competition under the current general trade condition

Number of companies

Productivity increase and costs reduction 57 Quality 44 Fashion/Design 21 Brand/Communication 18 Service/delivery 28 No factor is really effective 1 Other (specify ) -

16

4.3 In your opinion what are the levers that should be supported to enhance the competitiveness of European manufacturers

Number of companies

Support innovation (technology, design, etc ) 42 Support the financial strengthening of companies, 43 Support human resource development (training, etc)

33

Lower taxes, lower social costs 66 Other (specify) -

4.4 Does your company have a strategy to deal with the new competition

Number of companies

Not yet 13 We have been thinking about but a new plan has not yet been outlined

54

Yes, we have developed a new competitive strategy 17 Other (specify ) -

4.5 If you have been thinking about a new competitive strategy what are the actions that you envisaged? (1=low importance, 5 = high importance)

1 (number of companies)

2 (number of companies

3 (number of companies

4 (number of companies

5 (number of companies

Price reduction through cost reduction and increased productivity

27 18 9 9 9

Price reduction through outsourcing of some production processes/products

17 9 17 6 2

Quality improvement (materials and manufacturing processes)

13 22 8 13 4

Improvements in design and fashion

9 5 16 8 7

Improvement of service component (delivery, etc )

4 15 15 11 8

Improvement of customer satisfaction through customization

5 5 4 9 11

Investments in image, brand and communication

4 4 6 4 14

Other (specify ) -

17

2.2. LEATHER SECTOR Regarding competitiveness of Romanian leather industry, during November 2004 – January

2005 have been made a study on basis of a Competitiveness Questionnaire elaborated by

CAST, Italy. In Romanian leather field have been sent to over 50 companies but only 17 have

sent completed forms. The general situation resulted from these is the following:

Company profile: - 94,11% are tanneries;

- 5,89% leather goods producers;

- 76,47% are selling leather products (included shoes);

- 17,47% are leather sellers;

- 5,88% are selling clothes and other leather goods (other than shoes);

- 70,59% own production sold;

- 29,41% lohn production sold;

- 64,70% are large companies;

- 17,64% are medium size;

- 17,64% are small size;

Markets: - 82,35% mainly EU 15;

- 17,64% mainly Domestic.

General Awareness on Competitiveness

Company’s sales are: In terms of Quantity In terms of Value Increasing: 47,06% 35,30%

Decreasing: 35,30% 35,30%

Stable: 17,64% 29,40%

Regarding current strengths of company over 50% consider that need minor changes to

cope with competition and the same figure consider that in the next two years the competitive

position of their company will be similar to present on the market.

18

The most threatening competitors are:

� 41,18% Chinese;

� 17,64% EU 15;

� 11,76% EU 10;

� 11,76% Domestic;

� 11,76% South Mediterranean;

� 5,90% Others like: India, Indonesia and Vietnam.

The Chinese issue

DIRECT consequences of the recent increase in Chinese competition: 76,47% YES

11,76% NO

11,77% Not affected

Consequences were quite equally distributed between reduction of quantities and decrease of price in own sales, decrease of own prices in order to maintain the same level of sales and reduction of quantities and decrease of price in own sales. The negative impact on their business was: 64,28% significant 28,57% very remarkable 7,15% minor The segment of company clients which suffer most from the Chinese competition is

European (25) traders (importers/wholesaler/retailers) (about 44%) and products the most

affected are the middle range ones (about 70,59%).

Romanian leather companies consider that the strongest competitive factor of the Chinese

exporters is the price (about 70,83%).

About 41,67% from Romanian leather companies think that all the Chinese manufacturers

adopt unfair competitive practices and 33,33% consider that this is often happened, but

they don’t have direct evidence.

Examples of most frequent unfair commercial practices adopted by the Chinese are:

� Counterfeited products (29,41%)

� Dumping (29,41%)

� Unregistered imports/smuggling (20,58%)

19

� False custom declarations (17,65%)

The strongest allies of Chinese products are traders (importers/wholesalers) (32,41%) and

local consumers (25%). Regarding the last ones, these, due the low incomes prefer to buy

poor quality products at low prices.

The weak points of Chinese manufacturers are:

• 57,90% Quality;

• 21,05% Product design;

• 21,05% Delivery/service.

Under the current general conditions, the competitive advantage of Chinese producers is

in the following factors:

• 38,24% Price;

• 26,47% Price/Quality ratio;

• 20,59% Product Range;

• 14,70% Customization.

Regarding The Future, Romanian leather companies consider that the Chinese presence in

European markets will: - increase (88,23%);

- remain as today (11,77%).

In Romanian leather companies’ view, the most important factors which may be effective to

counter Chinese competition under the current general trade condition are:

� Productivity increase and costs reduction;

� Quality; and

� Fashion/Design.

The levers that should be supported to enhance the competitiveness of European

manufacturers are:

� Lower taxes, lower social costs (35,89%);

� Support the financial strengthening of companies (30,77%);

� Support innovation (technology, design, etc) (20,52%);

20

� Support human resource development (training, etc) (12,82%).

Romanian leather companies recognize that they need a strategy to deal with the new

competition but for the moment it isn’t very well defined.

� Quality improvement (materials and manufacturing processes),

� Price reduction through cost reduction and increased productivity,

� Improvements in design and fashion,

� Innovation,

� Investments in image, brand and communication

are few actions that they have envisaged for a new competitive strategy.

3. SWOT ANALYSIS OF ROMANIAN LIGHT INDUSTRY

Till now, Romanian light industry (Textile/Clothing and Leather/Shoe) had the advantage

of low labour costs and intensive work.

Like in many other CEECs countries, Romanian industry has suffered competitiveness loose

in the last 10 years. Some of the factors (with positive or negative effect) which are important

in competitiveness of Romanian light industry are following presented.

3.1. STRONG POINTS:

� Light industry is a viable sector with long tradition in Romania;

� There are viable industries, their products have assured markets, being destined to

vital and fashion needs of people;

� Its products are competitive for domestic and export markets;

� Has a stable and well qualified personnel;

� Raw materials are high valorised;

� Large flexibility and adaptability to changes;

� Final sectors have the capacity to sustain the imports, in the same time creating a

currency surplus due the exports;

� Comparatively with other industrial sectors, the modernisation or the establishment of

new company’s costs are not very high.

21

3.2. WEAK POINTS:

� Lack of domestic raw materials as quality and quantity;

� Still a large amount of low-performance machines and technologies in the primary

sectors (textile and tanneries);

� High processing costs in primary sectors, mainly due to:

o large unstructured units, with low flexibility and adaptability to the demands of

the markets,

o use of units below profitableness level,

o over dimensioned personnel,

o low productivity,

o high material and energetic consumption as compared to those on worldwide

level,

o lack of investment funds and work capital;

� Lohn system limits the possibilities of capital rising from company own sources and

reduce the relations between domestic primary and final companies;

� Lack of their own delivery/sales systems on the external market;

� Communication and information problems;

� Difficulties in accessing the financing sources;

� Delay orientation to more complex and upper range products;

� Absence of a general and adequate frame to stimulate and improve entrepreneurial

skills in marketing, management and controlling.

3.3. OPORTUNITIES

� Pan –Euro –Mediterranean free trade area, where Romania and Bulgaria will be

included too, as the other 12 members;

� The existence of three new potential markets: enlarged EU, USA, CSI countries,

� Favourable environment for the creation of SMEs with low investment expenses;

� The existence of an important fixed means fund consisting of buildings;

� Direct investments growth, both from internal or external sources;

� Companies’ competences growth in quality management, R&D, design, branding,

marketing;

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� Investments in personnel knowledge/skills development using the existing and well

organized educational&training system;

� R&D involvement in innovation and creation of high added value products;

� Important investment projects dedicated to: infrastructure, environmental protection

zones development etc.;

� Consultancy regarding EU accession, exports development, competitiveness on free

market training etc.;

� Romanian economy connected to the European and international ones.

3.4. THREATS

There are different threats which are influencing competitiveness of Romanian light industry.

The most important are:

o Institutional threats (administrative-bureaucratic barriers; sectoral association are not

functional; fiscal instability; etc);

o Financial threats (lack of support the financial strengthening of companies; difficulties

in obtaining and repayment bank finance for SMEs; low level of investments; due to

the low incomes Romanian consumers prefer to buy poor quality products at low

prices);

o Maintaining the „expensive credits” for environmental protection, modernizing and

updating technology;

o Enhanced competition from European and Asian products;

o Legacy threats (internal legacy and bureaucracy which act as a brake in transportation,

commerce and export of products; legacy procedures which are not harmonized with

the EU ones, high export costs);

o Dependence of the raw materials and accessories which are not produced in the

country in the desired amount and quality;

o Producer threats ( lohn system has reduced innovation, development of new and

original products/brands; quality standards );

o Market threats (reduced internal market; high demand for cheap products due to low

buying power of Romanians; lack of educational programmes for consumers;

Asian issue and especially China; lack of information for importers/wholesalers)

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4. COMPARISON WITH OTHER COUNTRIES SURVEYED

On the basis of Summary of Questionnaire on Competitiveness from each sector (Textile /

Clothes and Leather / Shoes), CAST has made a General Survey on Competitiveness in the

10 participating countries:

� Bulgaria

� Czech Republic

� Estonia

� Hungary

� Latvia

� Lithuania

� Poland

� Romania

� Slovakia

� Slovenia

Followings are the comparative conclusions for Romanian companies on the main four points

of questionnaire, as they have been presented by CAST specialists during the PERFECTLINK

WORKSHOP held in Bucharest, on 18th of May 2005.

1. Company profile

The Romanian sample of companies presents some specific characteristics that make it

different from other samples:

� a high proportion of large companies (both in terms of employees and turnover)

� a higher than average presence of technical textiles producers.

� a large share of medium size “employers”

� a large share of sales to European Union 15 countries.

2. General Awareness on Competitiveness

Romanian companies are among the most optimistic samples interviewed.

Most of them are confident to be able to grow and prosper.

They are aware that Chinese competition is strong but they know that also local producers can

be very competitive.

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3. The Chinese issue

Romanian companies had to face decrease of sales and reduction of prices due to Chinese

competition also in upper-range products.

The general picture outlines an unbeatable position for the price factor and the price/quality

ratio of Chinese products.

Prices of Chinese products are so low that Romanian companies suspect them to be the result

of dumping practices.

4. The Future - Shaping new T/C and L sectoral strategies

Therefore the strategy that is emerging is based on one hand on a cost reduction and increased

productivity in the company themselves together with a general upgrading of the

product/service range. On the other hand lower taxes and lower social costs are considered

vital.

The emerging strategy aims at ensuring that the competitiveness of Romanian textile/clothing

and leather companies remains high and capable to deal with the new competitors.

5. THE EUROPEAN FRAMEWORK: THE EUROPEAN COMMISSION

SUPPORT POLICY AND PROGRAMMES

In his presentation at the PERFECTLINK WORKSHOP held in Bucharest, on 18th of May

2005, Mr. Francesco Marchi - TTrraaddee && IInndduussttrryy DDiirreeccttoorr iinn EEUURRAATTEEXX –– ssaaiidd tthhaatt tthheerree aarree

aabboouutt 34 actions for five pillars at EU level.

At the end of 2004, Commission and Member States endorsed the Recommendations worked

out by the High level Group. Those recommendations list the actions to be carried-out by:

� The Commission

� The member States

� The Stakeholders: Industry, Regions, Traders…

The 34 Actions at EU level will be:

21: carried-out or in the process of completion with Euratex involvement;

5: Euratex could take some future initiatives;

8: Euratex cannot act as those depend on Commission; Member States or Regions.

Actions will be concentrated in five areas:

� Environment

� Intellectual Property Rights

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� Education & Training

� Innovation and R&D

� Trade

as following:

Environment: Impact assessment study on the New Chemical policy - REACH

Intellectual Property Rights:

� User friendly multi-lingual web-site on Intellectual Property Rights;

� Vade-Mecum on IPR

� Information & awareness seminars at National level

Education & Training:

� Establishment of EU/National Observatoires

� Common structure of courses - Network of training

� Commons Qualification standards

� Implementing reconversion & re-classification units

� Sectoral Dialogue

Innovation and R&D:

� Technology Platform to identify long term industry vision for Research

&Development & Innovation

� Technical textiles

� Clothing Technology Breakthrough

� Integration of SMEs in R&D programs

� Non-technological innovation

Have been presented some European projects coordinated by EURATEX in R&D, innovation,

education and IPR.

Trade:

� Market Access Task Force

� Guidelines textile specific safeguard-China

� International actions

� Monitoring of trade

� Euromed common origin rules for easier, faster trading relationship

� Concentrate General System of Preferences (GSP) to smaller & Less Developed

Countries (LDC) + adaptation rules of origin

As conclusions at regional level must be elaborated more flexible procedures to facilitate

SMEs greater access to structural funds. Also, companies together with R&D institutes and

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universities have to propose projects within the technological platform, which results must

solve sectoral problems.

Competitors are not only China and Turkey but the other industrial sectors and to win means

to have a simple and well fundamented strategy.

In the same manner was the intervention of Mr. Gustavo Gonzalez-Quijano COTANCE –

Secretary General, who has presented some “Possible Measures at European Level”.

COTANCE The Confederation of National Associations of Tanners and Dressers of the

European Community is the representative body of the European Leather Industry.

It is a non-profit organization established in order to promote the interests of the European

tanning industry at international level.

The main objectives of COTANCE are EU Lisbon Strategy Objectives: to become by the

year 2010 the most competitive and dynamic knowledge-based economy in the world

capable of sustainable economic growth with more and better jobs and greater social

cohesion.

As principal actions of COTANCE have been presented:

� We have successfully managed the regulatory development in the area of environment

and health & safety

� We have eliminated most existing illegal trade barriers and have managed that the EU

integrates our concerns in its trade priorities

� We have built up strategic relations & networks with allied sectors

� We have opened up EU funding and dynamised sectoral R&D & Education

� We have a result-oriented Social Dialogue

COTANCE involvement in the area of:

Environment (one of the most problematic area of tanning industry)

� Water legislation

� VOC

� IPPC – Bref for Tanneries (Revision)

� EWC/HWL

� EPER

� PCP, Azo-Dyes

� REACH

� Balai Directive

� ABP Regulation 1774/2002

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� Food Safety Regulation

� Reform of the CAP

Trade

� 15 years ago: Europe’s claims were not listened to and not respected by the

International Community

� In the 90’s Europe starts challenging unfair trade patterns, its claims are heard and

acknowledged

� Today: Europe’s claims are followed up in a regular dialogue with EC Directorate

General Trade and well positioned within the WTO Round

Chemicals

� 15 years ago: COTANCE went to meet major chemicals companies

� Just before the White Paper: COTANCE tries to broker a deal on chemicals use with

TEGEWA

� Now: Chemicals companies come to meet COTANCE (Elementis, BASF, Buckman

Laboratories, etc.)

Social Dialogue

� Support for Image – CSR: Code of Conduct

� Support for Training – Projects

� Support for Trade – Joint Declarations

� Support for « Made in… » - idem

� Support for Funding – Cooperation

R&D and Education

� Some 15 Million �/year in EU projects

� SPRINT

� TANNET

� RESTORM

� SILIC-SALT

� DERMAGENESIS

� Leonardo + Craft-type Projects

Future commitments of COTANCE are:

� Anchoring COTANCE interests in the 7th EU Framework Programme for Research &

Development (EARTO, …)

� Influencing the networks embodying industrial value chains (Chemi, …)

� Organising the supply chain (EU Contract, traceability, …)

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� Surfing the wave of public opinion (Eco-label, CSR, …)

� Developing the image of European leather in the internal market & opening export

markets (« Made in », Dialogue DG Trade, WTO, …)

� Cooperation with EURATEX in order to offer a better visibility and support for

European textile & leather industry.

6. GOVERNMENT PLANS FOR SUPPORTING LIGHT INDUSTRY

Romanian government by the Ministry of Economy and Commerce have in view to sustain

and support light industry in its aim of competitiveness growth. For this have been taken the

following measures:

� Quality, environment, social, safety & health standards implementation and

ecolabeling of products implementation by governmental financial support (50% for

SMEs and 65% for large size companies) in the framework of the “Programme for

competitiveness improvement” coordinated by Ministry of Economy and Commerce.

� Development and improvement of the instruments for companies support by

increasing of budgetary funds and by extension with new actions as:

• development of design centres for clothes and shoe;

• support in realizing and promoting of companies own collections and

lohn reducing;

• brand, models and industrial drawings protection;

• training and skilling of personnel from the sector;

• support in subcontracting projects between large and small companies,

having in view the increase of added value of products and integral

export.

For light industry development and market strengthening have been launched the following

specific objectives:

� Increase of production with 3,4% per year in 2005 / 2007 period, by modernisation of

viable companies and by new company’s development, especially in primary sectors (e.g.

tanneries etc.)

� Competitiveness growth of sector products, on domestic and external markets;

� Direct export increasing with a rate of 5,9% per year in the period 2005 – 2007;

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� Industrial development in correlation with environmental factors and EU directives, these

representing an essential component of the industrial competitiveness;

� Promoting of R&D project for sectoral problems solving in a large partnership between

companies, R&D institutes and universities.

7. CONCLUSIONS

The information has been collected at the end of 2004 and do not reflect the real

situation at this moment in the light industry in Romania.

Now, challenges for the light industry in Romania have come in the way:

- the drop in the interest in the processing activity as a consequence of the rise in

the minimum salary in economy;

- the rise in the utilities price, with consequences in the lohn-type activity;

- appreciation of national currency in comparison with the main international

currency with direct effects for the competitiveness of products to export ;

- uncertain perspectives with respect to developing the raw materials basis in

agriculture;

- the need for urgent implementation by the economic agents of European

standards on quality, environment, social, occupational safety and decent work

in order to keep selling products on EU, US markets etc.

The proposal for a national strategy for light industry is in government plans.

For Romanian light industry there are some problems which must be solved:

� the first and most important is a better sectoral organization recognized at EU

level;

� a better information of SMEs on access possibilities to structural funds;

� information of SMEs on EU actions and problems (environment, trade, REACH,

social dialogue, R&D and education etc.);

� training and skilling of personnel from the sector;

� large dissemination of EU regulations regarding future EU accession.

This paper have been written by the representatives of ATEROM and ICPI - ROMANIA

BUCHAREST, June 2005

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References:

1. *** Development Strategy for Leather and Shoe Industry, on Medium and Long Term, 2003 2. Mirciu V., MEC - Romanian Light Industry (Textile, Clothes and Leather – Shoes Industry) – Present and Perspectives; paper presented in PERFECTLINK Romanian Workshop, May, 2005 3. Deleanu T., G. Anghelescu, ATEROM - National Statistics in Romanian Textile Industry; paper presented in PERFECTLINK Romanian Workshop, May, 2005 4. L.Albu, ICPI – National Statistics and General Result on Competitiveness Questionnaires for Romanian Leather Industry; paper presented in PERFECTLINK Romanian Workshop, May, 2005 5. Oriana Mazzali, CAST - Results of Company Questionnaires in the 10 Participating Countries; paper presented in PERFECTLINK Romanian Workshop, May, 2005 6. Francesco Pellizzari, CAST - Import and Export in the 10 Participating Countries; paper presented in PERFECTLINK Romanian Workshop, May, 2005 7. Francesco Marchi, EURATEX - Political implications & possible measures at EU level; paper presented in PERFECTLINK Romanian Workshop, May, 2005 8. Gustavo Gonzalez-Quijano - Survey on Competitiveness - Possible Measures at European Level; paper presented in PERFECTLINK Romanian Workshop, May, 2005