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Central and Eastern European markets
Feature: 3/10/2004



Fibre and technical textile companies set sights on new opportunities

Fibre and technical textile companies looking for long-term gains are increasingly turning their attention to markets in Central and Eastern Europe, according to the latest issue of Technical Textile Markets (see story in director-e News 21 October).

Given that Asia – and China in particular – offers the best growth opportunities, this strategy appears to fly in the face of conventional wisdom. But the appeal of the Central and East European region lies in its solid infrastructure, skilled workforce and strong growth potential.

Many technical textile producers also expect growth in Central and Eastern Europe to accelerate as the region’s economies improve in the wake of EU enlargement – which took place in May 2004 – and in anticipation of the next expansion phase, which is expected in 2007.

At DuPont, for example, sales in Central and Eastern Europe have grown considerably over the past three or four years. Kimberly-Clark, too, is looking to expand its personal care and consumer tissue businesses in Eastern Europe – as well as in Asia and Latin America.

Technical textiles producer Johns Manville already has a large fibreglass operation in Slovakia, and is expected to establish a nonwovens manufacturing operation in the region.

The Russian market
Russia is another area for potential growth. The Russian market is characterised by: increasing purchasing power and a growing middle class.

It also has discerning customers – which is especially important for sellers of high value products – as well as a booming construction industry that is creating new hotel rooms and restaurants. Demand for imports is growing as the Russian textile industry declines.

Russian incomes are rising by about 6 percent per annum, leading to increased consumer demand. The country also has a rapidly growing middle class – amounting to an estimated 40 million out of its 145 million population. 5 percent of the population is considered to be “rich”, in the sense that it has very high purchasing power.

With domestic production of home textiles insufficient to meet market needs, Russia will have to import increasing amounts of home textiles to meet the expected growth in demand.

Expanding sales in Central and Eastern Europe, as well as in Russia, may well have contributed to the decision by Reliance Industries to buy German polyester fibre company Trevira. The move is unusual in that Reliance is based in India where costs are among the lowest in the world, whereas Trevira is based in Germany where costs are among the highest.

Expanding market
But Trevira operates close to the expanding market in Central and Eastern Europe, and manufacturers who supply fibre and textile based products made in remote factories will become less and less common in the years to come.

Trevira’s future has appeared uncertain ever since it was spun off from Hoechst in 1998. Reliance Industries may now provide it with the financial security that it needs to plan a future growth strategy.

On the other hand, Reliance may simply have its sights set on a simpler and less grandiose objective: to acquire the Trevira brand, close down Trevira’s costly European plants, and transfer all production to India in order to keep down the cost base.

This would provide Reliance with access to higher added value markets around the world without having to maintain costly production facilities.

If Reliance Industries does indeed intend to transfer production to India, such a strategy would be a risky one. First, redundancy costs would be considerable. Second, political sensitivities associated with asset stripping could generate adverse publicity that could tarnish the Trevira brand.

Brand reputation
Third, the reputation which the Trevira brand holds—and any price premia which its products may command in higher value markets—could be jeopardised if production were transferred to a low cost country.

Reliance would also forego the opportunities and strategic benefits provided by market proximity if it transferred production to India.

If the markets of the former Eastern Bloc do take off, as is widely expected, Reliance stands to capitalise on a major business opportunity: filling the vacuum created by the major European chemical companies in the 1990s when they exited the fibres business in pursuit of more lofty markets in life sciences.

‘Fibre and Technical Textile Companies set their sights on Central and Eastern Europe’ is published by Technical Textile Markets, a quarterly publication from Textiles Intelligence. It provides business and market analysis of worldwide trends in man-made fibres, technical textiles and industrial textiles manufacturing, trade and distribution.
Author: John Gibbon
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