Footwear opportunities to the EU market

by Sriyani de Saram, Assistant Director, Export Development Board

The European Union has granted Duty concessions to Sri Lanka on the issue of the labour GSP for the footwear sector by reducing the duty rate for exports of leather footwear to 0% duty & shoes with textile uppers to 4.9% till the end of 2005 . This would be a very good opportunity for Sri Lankan exporters to get a foothold in the European Market.

The footwear industry which was originated in Europe gradually shifted to the Asian region in the late 80s due to the high labour cost in these countries. Due to this development the Asian region was able to increase their shoe production from 40% to 70% in the last two decades. At present the major suppliers of footwear to the world market is the Asian region, namely China Vietnam India, Indonesia.

The EU and the USA are the major markets for Sri Lankan Footwear. The Footwear industry which earned more than 70b US dollars in 1999 was in a declining trend from 2000 mainly due to the removal of the EU concessions to Sri Lanka and removal of the anti-dumping duties imposed on China and Indonesia.

The EU market

The European Union which consisted of 15 countries at its inception was expanded to 25 countries on the May 2004 with 10 more countries obtaining its membership. The unification allows free movement of capital, goods services and people the internal borders have been removed.

A precondition for this free movement is uniformity in the rules and regulations concerning locally produced or imported products. Except for England Denmark and Sweden all other countries use a common currency which is Euro .

At present the EU is the second largest economy of the world. In terms of population which is 455 million it is the third largest consumer market after India and China. EU is the source of 46% of world outward foreign direct investments (FDI) a host to 24% of inward FDI.

Consumption of footwear in the EU was increased by 4.8% from 1999 to 2002. An annual growth of 2% is expect for the next five years . The footwear market in the EU is characterised by cheap mass produced items but in recent years there has been some movement away from such products towards ladies leather boots and comfort footwear.

Within the range of manufacturing goods imported to the EU dependency on imports from developing countries was strongest for leather and leather products (75%) and footwear (72%) of extra EU imports. This shows the tremendous opportunities the developing countries have to expand their market share in the EU.

Germany is still the most important footwear market in the EU followed by UK, Italy and France, Spain. These countries account for 80% of EU footwear market. Footwear accounts for about 1.2 % of the total consumer expenditure in the EU.

Italian and Spanish consumers are the biggest spenders of per capita on footwear followed by the consumers in the UK France and the Netherlands. France has the highest per capita consumption of footwear in the EU which is 5.5prs. EU's general consumption is 4.5Prs. In year 2001 Sri Lanka was one among the leading 5 supplier of the indoor slippers to the UK and Germany.

Trends in consumer markets

Although the EU represents one single market we must not forget that it is a homogenous market. Characteristics such as history, culture, climate demography and disposable income differ between the countries.

These factors have to be very carefully taken into account by the exporters from developing countries.

The difference in climate also determine the buying habits of consumers. The Nordic countries are characterized by a cold climate and long dark days in winter while Middle Europe has a mild climate and the Mediterranean countries have a subtropical warm climate.

Footwear has become an essential item for people in those countries of cold and mild climate to protect their feet from the cold.

It is very important that the exporters study the trends in consumer markets and consumer behavious in the EU countries which is very different to Sri Lanka. Most important factors are the population growth, single person households, ageing society, efficient day trippers, multicultural market and leisure times .

Population growth

In the 90's EU population increased by 13 million which equals to 3.5% growth after its enlargement. There will be a further increase but the important fact is this increase was caused by two thirds of immigration and only one third represents the natural growth .

The rising single person household is a new phenomenon in the Europe. The implications here for exporters are rising demand for consumer goods and food products packed into smaller quantities .

Europe is characterised by an ageing society. People born during the large baby boom after the second world war is reaching their retirement age in this decade and at the same time life expectancy in Europe is increasing.

This group is referred as "well off older folks" (WOOFS) want to make the best out of their spare time. This segment opens up new market opportunities as a result of increased demand for luxury goods, sports and recreation items.

Efficient day trippers

The working couples that live together and that have no children are called DINKIES (double income no kids). This segment has become a very high potential market segment for exporters of consumption goods. This group has a relatively high income and enjoy luxury making the best out of their spare time .

Influence of the immigrants

In the case of multicultural markets immigration has highly influenced the ethnic composition of the population in the EU . These migrant population has influenced the consumer behaviour though their different lifestyles & consumption patterns.

They take up a rising share of total population and on the supply side too by starting their own businesses ex. Chinese & Indian people have very successful business enterprises( eg:restaurants) in almost all the EU countries. The demand for exotic food is highly influenced by this market segment.

Although the work is considered very important to Europeans not only as a source of income but as a self fulfillment, the trend to enjoy more and more leisure time is on the increase. Thereby demand for part- time jobs are also increasing in the EU. In Netherlands only, 42% of employment is part-time. This trend of more leisure time has opened up huge market in the field of recreation, hobbies, sports, gardening and do-it-yourself activities

Consumer behaviours such has quality and service, convenience ,growing demand for healthy organic & exotic food, Image responsible company, Price the network consumer and educated consumer have a great impact on the goods exported to the EU. EU customer is more knowledgeable than the customers o the other parts of the world.

Exporters from developing countries who seek to enter the EU market need to take into account these factors which influence the production and consumer behaviour. Therefore, a well motivated strategic selection of target markets is very important.

That is why the market research is highly important for exporters in developing countries intending to enter to the EU market .

Further the study of non tariff trade barriers & legislation and market requirements is highly important in entering to these markets. Legislation lays down product characteristics or their related process and production methods standards and may include terminology symbols and packaging marking or labeling requirements. This may differ from product to product.

There is no special EU standard for footwear other than safety footwear. Despite EU harmonization individual markets have different requirements regarding quality, materials, sizes, colours etc. Two different size system for footwear are used in the EU in general. the English size system and French size system. Sometimes a combination of both.

Joint venture, subcontracting co-makership and private labeling

The challenge to exporters in developing countries is hard in the EU Market. They need to improve competitiveness by improving productivity, and reducing production and marketing costs. Anticipating the market trends being quality and environment conscious they have to comply with the increasing market demands .

This may be too much for an exporter from a developing country to handle on his own. The best solution in this regard is to collaborate with a foreign partner. There are four types of strategic alliance that an exporter from a developing countries could make use of. They are joint venture ,subcontract, co-makership agreements & private labeling.

Subcontracting has many advantages for suppliers in developing countries ranging from better capacity utilisation , regular sales and to saving time on marketing and distribution of the product or service in the target market.

Co-makership agreement is even more interesting since the supplier benefits from training and technical and technological expertise from the client. This results in a higher added value of the supplier who even receives financial support from the client.

A private label is a unique label for a specific retailer. Large retailers like department stores supermarkets and do-it-yourself chains with established names are increasingly entering into direct contracts with producers to place the retailers brands on the products manufactured. A s such private labeling is a type of co-makership or subcontracting between supplier(manufacturer) and client (retailer).

Private labels are usually sold at a lower price than the brand leaders. Prices in private labels in the EU can easily be 10-18% cheaper and nowadays sales of private label products account for around 45% of products sold in the EU retail sector.

Market promotion

Market promotion is the most important part in exporting to the EU. Projecting your image to a partner in an international market is considered market promotion. Market promotion can be done through wide variety of tools such as direct marketing telemarketing participating in trade fairs ,contact promotion programmes , inward & outgoing missions internet etc. The choice depends on various objectives such as target market & the available budget.

The most popular mode of market promotion among the exporters of developing countries is trade fairs. The trade fairs have developed from mere market places for buying & selling into vital sources of information and meeting places for trade partners What makes trade fairs unique is their efficiency an effectiveness as tools for communication .

They offer the opportunity for people to meet, to talk face to face & get the immediate feedback. They also enable people to use all senses sight , hearing ,touch, taste and smell .

Unfortunately the footwear industry in Sri Lanka has not yet received its due recognition , compared to the other industries such as garments industry. The footwear industry is similar to the garment industry in operational aspects. Both industries use the same accessories & the skills. The apparel & footwear goes together as clothing accessories in the market.

If ever the quota system for the garment industry is phased out, the footwear industry is the only industry that can absorb the displaced labour of the garment industry.

Sri Lankan manufacturers are now geared to manufacture high quality stylish shoes similar to those of imported products, If the public of this country make a little contribution towards the footwear industry by wearing locally made shoes without going after the imported labels, It will contribute to save significant amount of foreign exchange which flows out of the country for imported footwear. We must not forget the fact that a dollar saved is a dollar earned.