www.director-e.com
  • Name Badges International
  • Safety and Health Expo With Professional Clothing Awards
  • Cob Mex
  • Safety and Health Expo With Professional Clothing Awards
To visit Berendsen UK Ltd... Click here
Username:     Password:    
Thursday 24th May 2018
Welcome

Features:

Are you involved in any new innovations, product developments or pioneering research? If the answer is yes then we want to hear about it. In the fast-paced working garment industry we pride ourselves on providing our members with the latest information to keep their business ahead of the game. To participate in a feature download our features list here or email us at media@director-e.com

Russia's textile industry
Feature: 3/7/2002



After a decade of struggling to survive, the Russian textiles sector is beginning to attract the attention of serious investors - a development that experts say could help the ailing industry weave a brighter future (director-e News, Wednesday 24 July).

Conditions in the Russian textile industry are still grim: factory equipment is outdated and money is scarce.
Conditions in the Russian textile industry are still grim: factory equipment is outdated and money is scarce.


Several recent merger and acquisition deals involving some big players - including the purchase of a share in Moscow's Trekhgornaya Manufaktura by Russian Aluminum owner Oleg Deripaska - are widely seen in the industry as a positive sign. But the current situation is still far from rosy, insiders say, with assets deteriorating, factories mired in debt and working capital in short supply.

As is often the case in Russia, many of the industry's problems stem from the Soviet past. Until 1992, the textiles industry was part of the Soviet central planning system and the economic co-operation structure of the Union of Mutual Economic Assistance (SEV), which encompassed the Socialist bloc's economies.

"As a result, the Russian textiles industry developed largely independently of the industrialised countries and most Third World nations", says Andrei Filatov, head of the Russian Cotton Society, a Moscow-based association of textile manufacturers.

"The disintegration of the Soviet Union and SEV resulted in Russia's textiles industry losing its most crucial raw materials suppliers", he adds.

Cotton supplies from Central Asia dropped from 1.19 million tonnes a year in the early 1990s to only 260,000 tonnes in 1998.

Basic problems

While cotton accounts for most of Russia's textile business, insiders say companies that also work with man-made textiles and wool experience the same basic problems, since they, too, process raw materials and produce a range of both cloth and clothing.

The barter-payment schemes that were widespread at the initial stages of capitalism in Russia did not help the domestic textiles industry, because cheap cotton supplied from Central Asia to traders in exchange for goods was immediately sold to other countries for profit, leaving the struggling textiles companies idle. The manufacturers lacked the infrastructure needed to buy directly from the cotton growers.

As companies accumulated debts, they were forced to switch to the cheapest, most basic products to stay afloat. New owners of privatised companies were concerned with immediate profits, investing little or nothing in factory upgrades.

As a result, the entire Russian textiles industry was losing money by 1996, despite having the highest annual turnover of all industries.

"The deterioration of the population's living standards brought about a sharp decrease in people's spending power", Filatov notes. "Meanwhile, shuttle traders who imported poor quality textile goods from China, Turkey and other countries, at prices affordable for the majority of the population, prospered".

Financial crisis

The situation changed after the 1998 financial crisis, when the rouble's loss of three-quarters of its value against the dollar made most imports of even the cheapest goods unaffordable for buyers and unprofitable for traders.

"The crisis benefited the domestic textiles sector", Filatov explains. "The surviving companies as well as newly formed firms studied all the mistakes made by the sector before the crisis and were determined not to repeat them.

"But for many companies it was too late - they were already bankrupt, and the sector on the whole was unable to fully benefit from the favourable economic conditions on the domestic and international market".

The textiles industry grew by 15 percent in 1999 and by another 44 percent in 2000, widening the range of products, creating more jobs in textile factories and pushing up the average salary in the sector.

But experts caution it has not all been good news. "The problems that have been snowballing since Soviet times not only hamper further development of the industry, but are putting it on the verge of collapse on the eve of Russia's WTO entry", Filatov says.

"The biggest problem, which is likely to hit the industry by 2005, is its poor technological state and a high degree of deterioration of equipment, which for some companies is close to 80 percent".

Future prospects

Experts are also wary about the industry's future prospects. "I believe the Russian textile industry's chances of competing in the global market are poor", says Alexei Krivoshapko, an analyst at the United Financial Group in Moscow.

Russia's market for finished textiles is worth $6 billion a year, providing hope for its domestic industry.
Russia's market for finished textiles is worth $6 billion a year, providing hope for its domestic industry.


"The quality of textiles supplied by the world's leading companies is much superior to those Russian factories will be able to produce", he adds.

Meanwhile, industry insiders say the sector could still do well by focusing on the domestic market. Consolidation of the industry could help it stay afloat.

"Recipes for successful operation are quite simple", argues Andrei Filatov. "The factories need to consolidate and set up joint supply and distribution channels, and look more closely at customers' demands".

Consolidation tendencies can already be seen in the industry. "Currently, 11 consolidated textile holdings, including the Russian Textiles Alliance, the Yakovlevs-ky Textiles Holding and other corporations, are accountable for 70 percent of the industry's total output", Filatov says. "Such companies can successfully compete with their rivals from Southeast Asia, China, India, Pakistan and Turkey".

Private investment

With the absence of state support for the textiles industry in Russia, which many companies have been calling for, private investors have stepped in and begun buying assets of textile factories.

Among the investors interested in the sector is Deripaska's Base Element. "Industries focused on the domestic market, such as the food industry, textile and the packaging industry, are the most attractive for investors", Deripaska said in a recent interview published in the Russian press.

Base Element recently acquired a share in one of the country's oldest textiles companies, Trechgornaya Manufaktura. The size of the stake has not been made public, but, according to the Base Element press service, it is smaller than a controlling share.

Another large investor in the sector is Gosinkor Holding, which started buying textile factories 2Ĺ years ago and has invested £10 million in the upgrade of its acquired factories so far.

Among Gosinkor's holdings in the textile industry are Slavia Textile, the Ivanteyevskaya textile factory and the Gavrilov-Yansky flax processing plant. With a monthly turnover of about £1.5 million, Gosinkor is among the key players in the Russian textiles industry.

Vladimir Pelevin, the general director of Guta Textiles, which is managing Gosinkor's textiles assets, says the company is planning to invest £6.3 million in upgrades at its textiles enterprises this year.

More factories

The company is also in the process of acquiring two more textile factories, and intends to buy perhaps a dozen more factories in Moscow, Smolensk, Ivanovo and Vladimir Oblasts by the end of this year, according to Pelevin.

"We're planning to become one of the largest textile groups in Russia", he adds. Guta Textiles is currently, Russia's third-largest textiles group, behind New Textiles Co. and Chaikovsky Textiles.

Although textile assets can be purchased quite cheaply, substantial investment is needed to turn them into profitable enterprises, insiders say. "It is possible to buy a textiles factory for around half a million pounds, but you'll have to spend at least twice as much to pay off the factory's debts and relaunch production", Pelevin points out.

What gives investors optimism about the sector's future is the huge market potential. Currently, Russia's market for finished textiles is valued at £4 billion a year, and experts say there is room for growth, given that the annual cotton processing per person in Russia is more than three times lower than that in the United States.
Author: John Gibbon
Features Archive
News story Latest Developments in FR
News story Hi Vis
News story Innovations in workwear
News story Beauty and Spa
News story Made in the UK
More profiles... More features...
Back to home page... Back to home page...
 
 
Please see our Terms & Conditions and our Privacy Policy for more information.
This site is Copyright©Marston Consulting Ltd. 2013-2014