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 Euro 80000 60000 40000 20000 02 20 00 20 98 19 96 19 94 19 92 19 90 19 88 19 86 19 84 19 82 19 19 80 0 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 1,250,000 1,000,000 750,000 500,000 250,000 Textile Clothing 0 19 73 19 74 19 75 19 76 19 77 19 78 19 79 19 80 19 84 19 94 19 99 20 00 20 01 20 02 20 04 20 05 people employed 1,500,000 Employment Clothing Textiles people employed (000) 300 250 200 150 100 Italy France Germany UK 50 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 (synthetic fibres, finishing substances, etc) Textile equipments Agriculture (cotton, wool, silk) Intelligent system of production Textile Industry Design Advanced materials, including micronano materials and technologies Automotive, aerospace, aviation industries Spinning Weaving Knitting Finishing Micro, flexible electronics Users/Consumers Army and armour industries Existing supply chain Sports and medicals Emerging supply chain geosynthetics etc Production processes subject to 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 Ferment Phase Mature Phase ? • Standardized products, production ystems, technologies, organisational routines • Customised products • Under-developed production systems and organisational routines • Mass markets •Employing emerging technologies • Declining market due to intense competition •Niche and emerging markets HOW FACTORS • Cost-based competition • Largely involve process innovations Technology Internal Market External • Centralised organisation Organisation •Performance/functional-based competition •Largely involve production innovations •Decentrelised organisation THEORETICAL FRAMEWORK Industrial Maturity-Dematurity FrameworkAbernathy 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 (dematurity). • 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 Low Architectural phase High Maturity Impact on production system 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, wellorganised 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 per kg yarn 1000 Hand loom Development towards maturity Fly shuttle 100 Spinn.wheel Working hours per 100m cloth 1000 Mech loom Automatic, standardized machinery Multiloom weaving Weaving 100 Require less skilled labour Hargreaves Northrop pirn changer 10 10 Spinning jenny Spinning Automatic loom Mule Projectile Self actor 1 Jet E.I Ring frame 1 Ring frame Auto ring frame 0,1 0,1 OE-rotor spinning Weaving and spinning technology-OECD (2004) 0,01 1750 0,01 1800 1850 1900 year 1950 2000 Process technology Working hours per kg yarn Working hours per 100 m cloth Weaving Automatic loom Projectile 1 Jet Spinning 0,1 1 Trend in 1900-80 Ring frame 0,1 Auto ring frame OE-rotor spinning 0,01 Trend in 1900-80 Predicted innovative pattern 0,01 Trend in 195080 Trend last 2 observation 0,001 1925 0,001 1950 1975 2000 2025 Weaving and spinning technology-future trend (OECD, 2004) Product Technology Consumer Technical Textiles Textiles 1940’s Production technology Fibre technology Functional Textiles 1960’s Multifunctional Smart/Intelligent Textiles Textiles 1980’s Processing technology 2000’s Finishing Advanced 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 70 620 60 600 580 bn Euros 50 560 40 540 30 520 20 500 10 480 0 460 Employment (000) Textile & Clothing Sector 2000 2001 2002 2003 2004 2005 2006 Turnov er Production Imports Employ ment Exports Sistema Moda Italia Statistics 104 102 Euro 100 98 96 94 Productivity - Italy 92 Europe 90 2001 2002 2003 2004 Year % of turnover 2006 2005 2006 Statistics: Technical Textiles 15.00% 12.50% 10.00% 12.50% 12.34% 3.15% 2.96% 12.34% 7.50% 5.00% 2.83% Italy vs Europe Italy vs World 2.50% 0.00% 2000 2005 2010 76% 74% 80% 70% 63% 61% 55% 60% 50% 39% 40% 30% 21% 20% 10% 3% 3% 0% Agrotech Meditech Hometech Buildtech Indurtech Mobiltech & Geotech Clotech Sportech Others 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 Trend in the Italian textile industry Adopt ring frame faster than other European countries Market Change Growing market as a result of unification of Italy (1860) 1930’s-1940’s •Local couturiers began to gain market as French and English couture were unavailable during the war •Begin international market expansion Competitive Change Structural Change Increasing number of vertically integrated firms A few large firms emerge as a result of mergers and acquisition 1950’s – 1960’s 1970’s – 1980’s 1990’s – 2000’s •The height of synthetic fibre production •Adopt mass-production technique imported from the US as a part of Marshall Plan •A leapt on productivity •Inflation due to a sharp increase of oil price and labour costs •Reach the highest productivity in Europe but cause over capacity •Extensive restructuring following MFAs •A further increase in wages •Continuous decline of production, employment, and turnover •Abolishment of MFA •Export textiles to the US •The beginning of Italian luxury fashion industry sponsored by large textile firms •The rise of Italian luxury fashion •Market expansion for ready to wear to the US •Crisis hits due to MFA & competition from the emerging countries •Expansion to emerging markets (India, China, Russia) •Fast fashion The beginning of competitive crises due to raising labour costs, obsolete plants and competition from the Far East A wave of merger and acquisition •A wave of merger and acquisition in the luxury fashion industry •Relocation to North African and Eastern Europe •Disintegration of structure •Declining employment •Forward integration to clothing manufacturing •Declining employment •A decline in number of firms and employment •A shift in power 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 18 66 19 2 19 1 7 19 6 86 19 9 19 7 9 19 8 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 Persons 14000 12000 Employment Net Profit 10000 50 8000 40 6000 30 4000 20 2000 10 0 0 Million Euros Performance 70 60 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) 2 Product (technical innovation) Process 1 7 0 1961- 1966- 1971- 1976- 1981- 1986- 1991- 1996- 2001- 20061965 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 Clothing , 30% Euro 120000 100000 Textile, 60% 60000 Productivity-Netherlands 40000 Productivity-Italy 80000 20000 0 2001 2002 2003 Year 2004 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 Textile Industry Turnover Total Manufacturing 800 600 400 100 Employment 1000 120 80 Textile Industry 60 Total Manufacturing 40 200 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 Year 1900’s-1920’s Trend in the Italian textile industry Preferential market agreement with the East Indies (Indonesia) was terminated in 1870. Market Change Losing market protectionism in the Dutch colony of East Indies Competitive Change Begin to compete with Japan over markets in Indonesia Structural Change 1930’s-1940’s Dematurity? 1950’s – 1960’s 1970’s – 1980’s 1990’s – 2000’s •Increased labour costs •Early rapid decline •Rapid decline continues •Extensive restructuring following MFAs •Economic slow down 2001-2003 •MFA is abolished in 2005 •Severe decline in Indonesian market share •Growing domestic and international markets •Losing colonial markets •A number of companies begin to shift to interior textiles and consumer technical textiles •Growing market in technical textiles •Exploitation of high added value technical textiles Intensified competition with Japan and Britain over Indonesian markets •Begin a rapid decline due to uncompetitive labour costs •Production relocation to Belgium for low-mid segments •A wave of merger and acquisition •Relocation to North America and Eastern Europe •Production relocation for high segment markets •Merger and acquisition continues •Clothing production largely disappears •Increased concentration, the most concentrated in Europe up to 1980 •Decreased employment and increased labour costs Company closures •Textile companies dominate the industry (60%) •Bipolarity of structure •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 50 4000 45 3500 40 35 3000 30 2500 25 2000 20 1500 1000 500 Employment 15 10 Net Profit 0 5 0 Million Euros 4500 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 Employment Performance 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 EU Framework Digitex 2008 Acquire Xennia Tech Functional digital printing 1987 Acquire Thiolon Artificial grass 2000, 2001 Acquire Nymplex, Polyloom Carpet backing 1990 Establish TC Armour 2007, 2008 Acquire Mattex Leisure Industry, Edel Grass Artificial grass 1998.1999 Buy Ares, Bryte Technology 2007, 2008 Acquire Phoenixx, Roshield, Composix, YLA & CCS Armour 1986 Acquire Bosta BV (Mega Valves) 1983 Acquire Plasticum BV 1994 Buy Synbra 2005, 2006 Divest Mega Valves, Plasticum, Synbra Technical Components 1974 Acquire Nicolon BV Geotextles 1991 Acquire Mirafi – TC Nicolon USA 1973 1973 License windsurfer Product development from windsurfing rig & board to outdoor fabrics. Building capability in composites for windsurfing board. Sport/Outdoor 1970 Dyeing selling Nomex 1974 Establish Hellenic SA 2004 Acquire Southern Mills 1998 Close down Atlantic Mills; Sell Hellenic SA 1974-1999 1964 JV with Blijdenstijn Willink NV (Permess) Denim 2005 Divest Permess 1964-2005. From consumer interlinings to industrial filtration and non-woven fabrics 1941 Buy JP Lorey Weaving Mills Industrial production techniques Textile merchants 1996 Collaboration with Southern Mills, Inc Continuous product and technology development Protective clothing Interlinings 2005 Acquire Polyfelt, Inc 1957 Merger with KSW Mass production technique 1841-1980's; vertically integrated since 1957 Flexible manufacturing system 1980's - 1704 -1841 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 Textile treatment Sport/outdoor Procedures & devices Grass Composites Plastics Textiles Advanced textiles 14 12 10 8 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 Suppliers Customers • Local search & local preferences Active inertia Local search • Process innovation by adopting the latest equipment Marzotto • Existing markets Distributors Competitors • Acquisitions to expand capacity and customer base • A rather static competence TEXTILE CLOTHING INDUSTRY Marzotto-competence statics 1836 Yarns and textile production and technology 1980 Cloth making production 1993: Relocation and rationalisation 1985 2005 Luxury brands High quality yarns and textile production and technology 2005: Demerger Maturity trap Will continue to remain in the same markets, Expansion to emerging 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 Advanced chemicals Customers Suppliers Armour Artificial grass Ten Cate Emerging processing technology Non woven Distributors Entrepreneurial, dynamic capabilities Competitors Functional digital printing New Distributors TEXTILE-CLOTHING INDUSTRY Creating new industrial boundaries New Competitors Ten Cate-competence dynamics 1841 1964 Textile production and technology Technical textile technology and chemical processes Dematurity 1974 Polymers 1987 Composite materials Developments on core concept, engaging emerging technologies, potentially disrupt existing production system and market-technology linkages 2004 Functional materials Evolution of Technology Transilience Impact on market linkages Niche creation phase Architectural phase High De-maturity Marzotto Ten Cate Ten Cate Low Marzotto Regular phase High Maturity De-maturity Ten Cate Ten Cate Low Revolutionary phase Impact on production system 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