1. 1 Present situation in the Slovak Leather and Shoe Industry in context of permanent increase of imports from China Presentation of Mr. Štefan Šulo on Slovak National Event Trenčín, 12.4.2005 “This article has been produced with the financial support of the European Community’s PHARE programme. The views expressed herein are those of ZKOP SR and can therefore in no way be taken to reflect the official opinion of the European Commission.”

2. 2 Main characteristics of production, imports and exports in the Leather and Shoe Industry of Slovakia At the beginning I would like to give you very brief information about the situation in the Slovak leather and shoe industry during the former 15 years. In consequence of disintegration of east markets and wild privatisation our production has started to droop very rapidly since 1990. In 1999 the production of our leather and shoe industry created only 19 % of the level of production in 1989. Thanks to existence of cheap and skilled workers and promotional politics such organisations as our association, some European footwear and leather companies have started to invest into our industry and our production began to grow. At present time the production of shoes creates about 35 % of level in 1989 and in leather about 19 %. The situation is stabilised. Foreign companies about 80 % of whole output. 90 % of this production is exported, mainly to the EU. From these reasons is very difficult to evaluate the impact of China import on Slovak leather and shoe production, because the original domestic production practically does not exist. Despite of existence of some technical obstacles which we have transplanted into our legislation (mandatory certification before 1997, quotas on Chinese shoe import during 1999-2002 etc.) the China import has been permanently increased from 0 in 1990 to 18 millions pairs in 2004. The import situation in Slovakia copied the situation in EU-15 countries.

3. 3 Production in Slovak Leather and Shoe Industry

4. 4 1.1 In which sector does your company operate?Number of companies Mainly leather3 Mainly leather products (including shoes) 17 Total companies20 Results of processing the questionnaires on competitiveness of the Slovak Leather and Shoe Industry

5. 5 1.2 Size Total companies - turnover (M euro)<5 5-2020-50>50 Number of companies1251220 - n. employees <1010-5050-250 >250 Number of companies367420 Size of companies

6. 6 1.3 Your company’s sales are: In terms of Quantity (number of companies) In terms of Value (number of companies) Total companies - Increasing6410 - Decreasing12820 - Stable2810 Total companies20 40 Sales

7. 7 1.4 In the next two years the competitive position of your company will be stronger, weaker or similar to present in your market? Number of companies - Stronger7 - Weaker4 - Similar9 Total companies20 Future of competitiveness

8. 8 2.4 Who are the most threatening competitors?Number of companies Domestic3 European Union 10 (from newly accessed countries)2 European Union 157 South Mediterranean Chinese17 Other (specify): Brazil -Pakistan -Thailand -Romania -Indonesia -Vietnam 111111111111 Total companies35 Competitors

9. 9 3.1 Did your company have DIRECT consequences of the recent increase in Chinese competition? Number of companies YES13 NO7 Total companies20 Consequences

10. 10 3.2 Consequences were:Number of companies loss of clients9 reduction of sales to one or more clients12 decrease of own prices in order to maintain the same level of sales5 reduction of quantities and decrease of price in own sales6 Other (specify): Total companies32

11. 11 3.3 The negative impact on your business was:Number of companies very remarkable2 significant10 minor1 Other (specify): Total companies13 Impact

12. 12 3.4 In which segment of your clients did your company suffer most the Chinese competition? Number of companies Domestic traders (retailers/wholesalers)10 European (25) traders (importers/wholesaler/retailers)5 Rest of the world traders1 Domestic manufacturers (supply chain)1 European 25 manufacturers (supply chain)1 Rest of the world manufacturers Total companies18 Segments

13. 13 3.6 What are the strongest competitive factors of the Chinese exporters?Number of companies Price20 Price/quality ratio3 Customisation/Flexibility4 Scope of product range6 Other (specify): Total companies33 The strongest competitive factors of the Chinese exporters

14. 14 3.7 Do you think that the Chinese manufacturers adopt unfair competitive practises? Number of companies Only sometimes1 Often14 All Chinese sales are characterized, to some extent, by unfair practices5 Total companies20

15. 15 3.8 Do you have evidence of unfair practises?Number of companies Yes, direct evidence1 No direct evidence5 Only Clues13 Rumours of the market1 Total companies20 Evidence of unfair practices

16. 16 3.9 In your opinion, which kind of unfair commercial practises are adopted by the Chinese? Number of companies False custom declarations16 Unregistered imports/smuggling11 Dumping17 Counterfeited products9 Other (specify) Total companies53 Kinds of unfair commercial practises

17. 17 3.10 Who are the strongest allies of Chinese products?Number of companies Local consumers13 Those local manufacturers who outsource production in China6 International brands present in your country (e.g. Benetton, Hugo Boss) Large retailers in your countries5 Traders (importers/wholesalers)13 Other (specify ) Total companies37 Allies of Chinese products

18. 18 3.11 Do the Chinese manufacturers have weak points?Number of companies Quality20 Delivery/service10 Product design4 Other (specify ) Total companies34 Weak points of Chinese manufacturers

19. 19 4.1 In the next years the Chinese presence in European markets will:Number of companies Increase19 Remain as today1 Decrease Total companies20 FUTURE

20. 20 4.2 What factor may be effective to counter Chinese competition under the current general trade condition Number of companies Productivity increase and costs reduction12 Quality12 Fashion/Design8 Brand/Communication9 Service/delivery10 No factor is really effective1 Other (specify ) Total companies52 Effective factors to Chinese competition

21. 21 4.3 In your opinion what are the levers that should be supported to enhance the competitiveness of European manufacturers Number of companies Support innovation (technology, design, etc )12 Support the financial strengthening of companies,11 Support human resource development (training, etc)3 Lower taxes, lower social costs18 Other (specify) -quotas 3 Total companies47 Levers for support of EU manufacturers

22. 22 4.4 Does your company have a strategy to deal with the new competitionNumber of companies Not yet3 We have been thinking about but a new plan has not yet been outlined5 Yes, we have developed a new competitive strategy12 Other (specify )- sell the goods from China2 Total companies22 Strategies

23. 23 4.5 If you have been thinking about a new competitive strategy what are the actions that you envisaged? (1=low importance, 5 = high importance) 1 (number of companies) 2 (number of companie s 3 (number of companie s 4 (number of companie s 5 (number of companie s Price reduction through cost reduction and increased productivity 11 56 Price reduction through outsourcing of some production processes/products 1 12 Quality improvement (materials and manufacturing processes) 263 Improvements in design and fashion1 168 Improvement of service component (delivery, etc ) 1 517 Improvement of customer satisfaction through customisation 11 6 Investments in image, brand and communication 1248 Other (specify ) Actions

24. 24 Actions that ZKOP envisaged In conclusion I will introduce some proposal of my association for the future which have to be done on companies and EU levels. Company level Improvements in design and fashion Investments in image, brand and communication Improvement of service component (delivery, etc) Price reduction through cost reduction and increased productivity Improvement of customer satisfaction through customisation

25. 25 National and EU level 1.Obligatory marking of the imported goods with the label MADE IN from the countries outside the EU countries 2.Obligatory marking of the shoe parts according to the Directive 94/11/ES 3.The Market control has to solicit the same documents and conditions regardless to the place and kind of sale 4.It is necessary to solve the problematic of antidumping, quotas restrictions and duty politics on EU and WTO levels to use the equal conditions 5.It is necessary to give clear specification of dangerous chemicals, which are not possible to find in shoes and leather goods 6.To fight again unfair competition and illegal practice in the international trade