GOING AGAINST THE GRAIN:
THE DEMATURITY OF THE EUROPEAN TEXTILE INDUSTRY
1Fianti Noor, 2Prof. Paul Smith, 1,2Natalie Stingelin-Stutzmann & 1Stuart Peters
1School of Engineering & Materials Science Queen Mary-University of London (UK) 2Department of Materials, Eidgenössische Technische Hochschule Zürich (Switzerland) BACKGROUND MULTI FIBRE AGREMENTS (MFAs)
• The European textile industry has been the object of industrial transformation since the 1970’s under MFA – Protection – Restructuring and modernisation
• Result: – Improvement of productivity – Continuous decline of employment – Declining market
Productivity
120000
100000 Turnover per employee
80000
60000 Euro
40000
20000
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
1980-1994: EU-12 (1980-85: reconstructed data for Greece, Spain and Portugal), 1995-2003: EU-15 (Source: Euratex, 2004) Employment
2,000,000
1,750,000
1,500,000
1,250,000
1,000,000
750,000 people employed people 500,000
250,000 Textile Clothing
0
1973 1974 1975 1976 1977 1978 1979 1980 1984 1994 1999 2000 2001 2002 2004 2005 Employment
Textiles Clothing 300
250
200
150
100 Italy
people employed (000) France 50 Germany UK 0 1995 1996 1997 1998 1999 2000 2001 2002 POST MFAs
• Abolishment of MFA (1 January 2005)
• European Technology Platform for the Future of Textiles and Clothing (2004) – Radical technological innovation – Improve long-term competitiveness of the sector – to reinforce the position of Europe as a leading global player
Technology Platform Industrial Reconfiguration
Chemicals Agriculture Intelligent Textile (synthetic fibres, (cotton, wool, system of equipments finishing substances, etc) silk) production
Textile Industry
Design Spinning Weaving Knitting Finishing Advanced materials, including micro- Micro, flexible nano materials electronics and technologies Users/Consumers
Automotive, Army and aerospace, Sports and armour geosynthetics etc aviation medicals industries industries
Emerging supply Production processes subject to Existing supply chain chain discontinuities Potential Problems
• An old industry with deeply-embedded routines
• Unfavourable structure – 95% are SMEs with limited research capacity
• Supplier-led innovation sector (Pavitt, 1984)
• Require paradigm change – technologies, production processes, understanding market demand, distribution systems, organisations and management
• Growing competition from LDCs even for advanced products
• Rising complexity of process and product innovations
RESEARCH QUESTION
Mature Phase Ferment Phase
• Customised products • Standardized products, production ystems, • Under-developed production technologies, systems and organisational organisational routines ? routines
• Mass markets •Employing emerging technologies
• Declining market due to •Niche and emerging markets intense competition HOW FACTORS •Performance/functional-based • Cost-based competition competition Technology Internal • Largely involve process •Largely involve production innovations Market External innovations Organisation • Centralised organisation •Decentrelised organisation THEORETICAL FRAMEWORK Industrial Maturity-Dematurity
Framework Abernathy et al (1978, 1983) • Maturity is inevitable in the process of industrial evolution
• Key aspects of the ‘maturity trap’ are: – cost reduction – economies of scale – Static or declining market share – standardization Maturity-Dematurity Framework
• Maturity can be arrested and, for some circumstances, reversed (de- maturity).
• De-maturity has to be pioneered by ” innovations that change an industry’s basis of competition at the same time that it disrupts established production competence, marketing and distribution systems, capital equipment, organisational structures and the skills of both managers and workers” (Abernathy et al, 1983, p. 109).
• The search for new concepts typically works its way back up through the same design hierarchy established by the evolution towards maturity which preceded it.
Evolution of Technology Transilience
Impact on market linkages High
Niche creation phase De-maturity Architectural phase
Impact on Low High production system
Maturity De-maturity
Regular phase Revolutionary phase
Low Abernathy et al (1983) Dynamic Capabilities Framework by Teece et al. (1994, 1997); Teece (1986, 2007)
• An attempt to unveil the foundations of long-run enterprise success in rapid environmental change
• The firm’s ability to build, integrate and reconfigure internal and external assets to address rapidly changing environments
• DC origins: – Routinized behaviour (e.g. NPD, TQC) – Creative and differentiated entrepreneurial acts Sensing and seizing opportunities through asset and capacity reconfiguration
Dynamic Capabilities Framework
• Dynamic capability defines the course of evolution of a firm as a consequence of chosen long-term competence development trajectory
• Firm’s asset positions determine its competitive advantage at any point in time and its evolutionary path constrains the types of industrial activities in which a firm can be competitive
• Organizational processes transform the capabilities of the firm over time.
Framework Discussion
• Abernathy et al. (1978, 1983) – Built on the evolution of technology and market at industry level
• Teece (1986, 2007) and Teece et al. (1994, 1997) – A firm level study built on evolutionary and behavioural economics combined with creative and differentiated entrepreneurial acts
• Hypotheses – De-maturity at firm level is a result of well-executed, well- organised dynamic capabilities – Maturity-trap is a consequence of under-developed dynamic capabilities METHODOLOGY Approach
• In-depth, longitudinal study to investigate the phenomena of maturity, de-maturity and maturity- trap in the textile industry in Europe
• Multiple cases study
• To address “how” question: – Firm level study – Long-lived firms (over 125 years)
• To address “factor” question: – Firm-specific and country-specific
• Comparative analysis
Case Study
• Italy – Marzotto, S.p.A
• The Netherlands – Ten Cate, NV
• Germany – Freudenberg Group
• UK – Hainsworth, Ltd. TECHNICAL EVOLUTION Process technology
Working hours Working hours per kg yarn per 100m cloth 1000 1000 Hand loom Development towards maturity
Fly shuttle Mech loom 100 Automatic, standardized 100 machinery Spinn.wheel Weaving Multiloom weaving Require less skilled labour Hargreaves Northrop pirn changer 10 10 Spinning jenny
Spinning Mule Automatic loom 1 Self actor Projectile 1 Jet E.I Ring frame Ring frame
0,1 Auto ring frame 0,1
OE-rotor spinning Weaving and spinning technology-OECD (2004) 0,01 0,01 1750 1800 1850 1900 1950 2000 year Process technology
Working hours Working hours per kg yarn per 100 m cloth
Weaving Automatic loom Projectile 1 Jet 1 Spinning Trend in 1900-80
0,1 Ring frame 0,1
Auto ring Predicted frame innovative Trend in 1900-80 pattern OE-rotor spinning 0,01 0,01 Trend in 1950- 80 Trend last 2 observation 0,001 0,001 1925 1950 1975 2000 2025
Weaving and spinning technology-future trend (OECD, 2004) Product Technology
Consumer Technical Functional Multifunctional Smart/Intelligent Textiles Textiles Textiles Textiles Textiles
1940’s 1960’s 1980’s 2000’s
Production Fibre Processing Finishing Advanced technology technology technology technology materials and hybrid technology
Smart production THE EVOLUTION OF THE EU TEXTILE INDUSTRY
• Each country appears to follow unique pattern of industrial evolution
• Therefore, the evolution is examined on country basis CASE STUDY 1:
ITALY and MARZOTTO, S.p.A Statistics
Italy 31%
Italy31.39% Others EU 69%
Employment 2004 Others EU
68.61% Turnover 2004 Statistics
Textile & Clothing Sector 70 620
60 600 580 50 560 40 540 30 bn Euros bn 520 20 500 Employment(000)
10 480
0 460 2000 2001 2002 2003 2004 2005 2006
Turnov er Production Exports Imports Employ ment Sistema Moda Italia Statistics
104 102 100 98
Euro 96 94 Productivity - Italy 92 Europe 90 2001 2002 2003 2004 2005 2006 Year % of turnover 2006 Statistics: Technical Textiles
15.00% 12.50% 12.50% 10.00% 12.34% 12.34% 7.50% 5.00% Italy vs Europe 3.15% 2.96% 2.83% 2.50% Italy vs World 0.00% 2000 2005 2010
76% 80% 74% 70% 61% 63% 60% 55% 50% 39% 40% 30% 21% 20% 10% 3% 3% 0% Agrotech Meditech Hometech Buildtech Indurtech Mobiltech Clotech Sportech Others & Geotech Innovative Characters
• Traditionally weak in R&D, high-tech industries including the chemical industry
• R&D is not the main source of innovation in the textile industry but the purchase of machinery, design, and customer needs
• Local/national equipment suppliers as the source of innovation
• Competitiveness lies on its disintegrated structure, cooperate in networked clusters, mainly locally situated, to form flexible specialised firms
Evolution towards maturity
Maturity Year 1900’s-1920’s 1930’s-1940’s 1950’s – 1960’s 1970’s – 1980’s 1990’s – 2000’s
Trend in the Adopt ring frame •The height of synthetic •Inflation due to a sharp •A further increase in Italian faster than other fibre production increase of oil price and wages textile European •Adopt mass-production labour costs •Continuous decline of industry countries technique imported from •Reach the highest production, the US as a part of Marshall productivity in Europe employment, and Plan but cause over capacity turnover •A leapt on productivity •Extensive restructuring •Abolishment of MFA following MFAs Market Growing market •Local couturiers began •Export textiles to the US •The rise of Italian luxury •Crisis hits due to MFA Change as a result of to gain market as French •The beginning of Italian fashion & competition from the unification of Italy and English couture luxury fashion industry •Market expansion for emerging countries (1860) were unavailable during sponsored by large textile ready to wear to the US •Expansion to emerging the war firms markets (India, China, •Begin international Russia) market expansion •Fast fashion Competitive The beginning of A wave of merger and •A wave of merger and Change competitive crises due to acquisition acquisition in the luxury raising labour costs, fashion industry obsolete plants and •Relocation to North competition from the Far African and Eastern East Europe
Structural Increasing A few large firms emerge •Disintegration of structure •Forward integration to •A decline in number of Change number of as a result of mergers •Declining employment clothing manufacturing firms and employment vertically and acquisition •Declining employment •A shift in power integrated firms towards buyers •An increase in concentration Maturity-trap
• Transient economic misfortune – Problems can be solved by re-enforcing the existing basis of competition i.e. speed of production and flexibility
• Did not see the decline as a consequence of permanent changes in demand, technology and competition
• The label “Made in Italy” will remain the industry’s unique competitiveness despite growing production relocation and OPT Maturity-trap
• Local search & local preferences – Business diversification to clothing and fashion brands – Favour local textile equipment makers as the main source of innovation Deter participation in global innovation networks
• Favour process innovation than product innovation
• Less developed technical textile markets among other textile industry in Europe
MARZOTTO, S.p.A
• The largest textile manufacturer in Italy
• Founded in 1836 in Valdagno, Veneto region as a wool yarn and fabric manufacturer
• Expanded the business to flax and linen and yarns fabrics through acquisition in the 1980’s
• Integrated forward to clothing and luxury brands in the 1980’s and 1990’s
• Demerged clothing business in 2005, and subsequently concentrate on yarn and textile manufacturing
Performance
14000 70 12000 Employment 60 Net Profit 10000 50 8000 40
6000 30 Persons
4000 20 Million Million Euros 2000 10 0 0
1866 1921 1976 1986 19971998 1999 2000 2001 20022003 2004 2005 2006 2007 Innovativeness
• Amongst the first companies to adopt mass production technique in the 1950’s in Italy
• The first textile firm in Italy that adopted “made in Italy” computer, ELFA 9003
• Amongst the first textile firms that integrated forward to clothing sector
• Early adopter of the latest spinning and weaving technology
• Relatively inactive in the EU research programmes
Patent
3 Product (design) Product (technical innovation) 2 Process
1 7
0 1961- 1966- 1971- 1976- 1981- 1986- 1991- 1996- 2001- 2006- 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 CASE STUDY 2:
THE NETHERLANDS / TEN CATE, NV Statistics
NL 1.3%
NL 2.1%
Others EU 98.70%
Employment 2004 Others EU 97.9%
Turnover 2004 Statistics
180000
160000
Leather, 10% 140000
120000
100000 Clothing , Euro 80000 30% Textile, 60% 60000 Productivity-Netherlands
40000 Productivity-Italy
20000
0 2001 2002 2003 2004 Year Innovative Characters
• Open for international collaboration
• Opposition (together with Germany and Denmark) to the EU industrial protection policy
• Concentrated R&D expenditure (DSM, Akzo-Nobel, Philips, Shell, Unilever)
• The textile industry contributes 0.34 percent of total industry R&D expenditure
• Chemical and equipment industries are the major source of information concerning innovation trends
• Textile contributes 60% of the industry population with technical textile producers being the most innovative ones.
Evolution towards maturity
1200 120 Textile Industry 1000 100 Total Manufacturing 800 80 Textile Industry 600 60 Total Manufacturing
Turnover 400 40 Employment
200 20
0 0 1956 1960 1965 1970 1975 1980 1985 1987 1990 1991 1956 1958 1960 1965 1968 1970 1975 1980 1983 1985 1990 1991 Evolution towards maturity
maturity Dematurity?
Year 1900’s-1920’s 1930’s-1940’s 1950’s – 1960’s 1970’s – 1980’s 1990’s – 2000’s
Trend in the Preferential •Increased labour costs •Rapid decline continues •Economic slow down Italian market agreement •Early rapid decline •Extensive restructuring 2001-2003 textile with the East following MFAs •MFA is abolished in industry Indies (Indonesia) 2005 was terminated in 1870. Market Losing market •Severe decline in •Losing colonial markets •Growing market in •Exploitation of high Change protectionism in Indonesian market share •A number of companies technical textiles added value technical the Dutch colony •Growing domestic and begin to shift to interior textiles of East Indies international markets textiles and consumer technical textiles
Competitive Begin to compete Intensified competition •Begin a rapid decline due •Relocation to North •Clothing production Change with Japan over with Japan and Britain to uncompetitive labour America and Eastern largely disappears markets in over Indonesian markets costs Europe Indonesia •Production relocation to •Production relocation for Belgium for low-mid high segment markets segments •Merger and acquisition •A wave of merger and continues acquisition
Structural •Increased concentration, Company closures •Textile companies Change the most concentrated in dominate the industry Europe up to 1980 (60%) •Decreased employment •Bipolarity of structure and increased labour costs •Agglomeration of retailers Ten Cate, NV
• One of the largest textile manufacturers in the country
• H. Ten Cate Hzn & Co was established as a linen merchant in 1704 in Almelo, Twente region
• Export to the Dutch colonies was the primary markets
• It has undergone two major transitions which transform the company from a linen to a high tech textile manufacturer for technical uses
• The third transition is underway which may disrupt the existing production competence and markets
Performance
4500 50 4000 45 3500 40 35 3000 30 2500 25 2000 20
Employment 1500 15 Employment Million Euros 1000 10 500 Net Profit 5 0 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Innovativeness
• Performing distant search
• Setting industrial trend to shift to higher added value textiles
• Performing path breaking change & continuous strategic alignment involving: – emerging technologies and markets, – a combination of internal and external assets to exploit opportunities
• Active in the EU R&D programmes
• Engage with university research centres
• Fundamentally entrepreneurial by which it shapes business ecosystems
Technology & market transition
2004 2008 EU Framework Digitex Acquire Xennia Tech Functional digital printing
1987 2000, 2001 2007, 2008 Acquire Thiolon Acquire Nymplex, Polyloom Acquire Mattex Leisure Industry, Edel Grass
Artificial grass Carpet backing Artificial grass
1990 1998.1999 2007, 2008 Establish TC Armour Buy Ares, Bryte Technology Acquire Phoenixx, Roshield, Composix, YLA & CCS
Armour 1986 1983 Acquire Bosta BV (Mega Valves) 1994 2005, 2006 Acquire Plasticum BV Buy Synbra Divest Mega Valves, Plasticum, Synbra
Technical Components 1974 1991 2005 Acquire Nicolon BV Acquire Mirafi – TC Nicolon USA Acquire Polyfelt, Inc
Geotextles 1973 1973 License windsurfer
Product development from windsurfing rig & board to outdoor fabrics. Building capability in composites for windsurfing board. Sport/Outdoor 1996 1970 Collaboration with 2004 Dyeing selling Southern Mills, Inc Acquire Southern Mills Nomex
Protective Continuous product and technology development clothing 1974 1998 Establish Hellenic SA Close down Atlantic Mills; Sell Hellenic SA
Denim 1964 1974-1999 2005 JV with Blijdenstijn Willink NV (Permess) Divest Permess
1964-2005. From consumer interlinings to industrial filtration and non-woven fabrics Interlinings 1941 1957 Buy JP Lorey Weaving Mills Merger with KSW Industrial production Mass production technique 1841-1980's; vertically integrated since 1957 Flexible manufacturing system 1980's - techniques Textile 1704 -1841 merchants
1700 1840 1860 1880 1900 1920 1940 1960 1980 2000 2001 2002 2003 2004 2005 2006 Path breaking change and continuous alignment
• Opportunity identification in emerging markets
• Rapid learning process – Technology, market, distribution system, consumers – Recombination of assets/factors of production
• Development – Internal development – Actively engage with national, regional and EU research programmes – Acquisition to complement or reinforce internal technical capability/capacity
• Establishment – Market expansion and product/technology refinement
• Divestment – Declining businesses
Patent
16 Printing components 14 Textile treatment Sport/outdoor 12 Procedures & devices Grass 10 Composites Plastics 8 Textiles Advanced textiles 6
4
2
0 1923 1967 1972 1977 1982 1987 1992 1997 2002 2007 DISCUSSION Industrial maturity
• In terms of process technology, maturity began in the late 19th century
• Industrial maturity occurs in different periods in two countries
• Process towards maturity in two different countries appears to follow different evolutionary paths:
– Different primary markets – Different industry structures – Different competitive environment – Different opportunities – Different trade policies (liberal and protectionism) – Different historical background
Maturity-trap
• Active inertia
• Local search & local Suppliers Customers preferencesActive inertia Local search • Process innovation by adopting the Marzotto latest equipment
• Existing markets
Distributors Competitors • Acquisitions to expand capacity and customer base
• A rather static competence TEXTILE CLOTHING INDUSTRY
Marzotto-competence statics
1836 1980 1985 2005
High quality Yarns and textile Cloth making yarns and textile production Luxury brands production and technology production and technology
1993: Relocation and 2005: rationalisation Demerger Will continue to remain in the same markets, Expansion to emerging Maturity trap Economies i.e. China, Russia, India De-maturity
New materials Emerging markets
Synthetic fibres Protective clothing High performance fiibres Geotextiles Composites Technical components Advanced, nano materials Armour Suppliers Customers Advanced chemicals Artificial grass
Emerging processing Ten Cate technology Entrepreneurial, dynamic capabilities Non woven Distributors Competitors Functional digital printing
New Distributors TEXTILE-CLOTHING INDUSTRY New Competitors
Creating new industrial boundaries Ten Cate-competence dynamics
1841 1964 1974 1987 2004
Technical textile Textile production technology and Composite Functional and technology Polymers chemical processes materials materials
Developments on core concept, engaging emerging Dematurity technologies, potentially disrupt existing production system and market-technology linkages Evolution of Technology Transilience
Impact on market linkages Niche creation Architectural phase High phase De-maturity
Marzotto Ten Cate Ten Cate
Impact on Low High production system Maturity De-maturity
Marzotto Ten Cate Ten Cate
Regular phase Revolutionary Low phase CONCLUSION
• The EU efforts to de-mature the textile industry through technological innovation by supporting revolutionary R&D programmes should be accompanied by social innovation
• Combination of the two types of innovation are fundamental to break away from maturity-trap
• Advances in the textile industry have to be complemented by advances in supplier industries and market industries
• Firms have to develop dynamic capabilities that are fundamentally entrepreneurial in the process de-maturity
– Distant search; international networks – Path breaking changes & continuous strategic allignment – Recombination of assets & cospecialisation – Constant change, innovation as a moving target