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 ScienceQueen 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

0

20000

40000

60000

80000

100000

120000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Eu

ro

Turnover per employee

1980-1994: EU-12 (1980-85: reconstructed data for Greece, Spain and Portugal),

1995-2003: EU-15 (Source: Euratex, 2004)

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

1,750,000

2,000,000

1973

1974

1975

1976

1977

1978

1979

1980

1984

1994

1999

2000

2001

2002

2004

2005

peo

ple

em

plo

yed

Textile Clothing

Employment

0

50

100

150

200

250

300

350

400

1995 1996 1997 1998 1999 2000 2001 2002

ItalyFranceGermanyUK

0

50

100

150

200

250

300

1995 1996 1997 1998 1999 2000 2001 2002

peo

ple

em

plo

yed

(0

00)

ItalyFranceGermanyUK

Textiles Clothing

Employment

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

Spinning Weaving Knitting Finishing

Users/Consumers

Chemicals (synthetic fibres,

finishing substances, etc)

Agriculture (cotton, wool,

silk)

Advanced materials,

including micro-nano materials

and technologies

Micro, flexible electronics

Automotive, aerospace,

aviation industries

geosyntheticsSports and medicals

Army and armour

industriesetc

Textile Industry

Existing supply chainEmerging supply

chainProduction processes subject to

discontinuities

Design

Textile equipments

Intelligent system of production

Industrial Reconfiguration

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

Mature Phase Ferment Phase

• Standardized products, production ystems, technologies, organisational routines

• Mass markets

• Declining market due to intense competition

• Cost-based competition• Largely involve process innovations

• Centralised organisation

• Customised products

• Under-developed production systems and organisational routines

•Employing emerging technologies

•Niche and emerging markets

•Performance/functional-based competition

•Largely involve production innovations

•Decentrelised organisation

?HOW FACTORS

Technology

Market

Organisation

Internal

External

THEORETICAL FRAMEWORK

• 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

Industrial Maturity-Dematurity FrameworkAbernathy et al (1978, 1983)

• Maturity can be arrested and, for some circumstances, reversed (de-maturity).

• 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.

Maturity-Dematurity Framework

Evolution of Technology Transilience

High

High

Low

LowImpact on production

system

Impact on market linkages

De-maturity

De-maturity

Maturity

Architectural phaseNiche creation phase

Revolutionary phaseRegular phase

Abernathy et al (1983)

Dynamic Capabilities Framework

• 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

by Teece et al. (1994, 1997); Teece (1986, 2007)

• 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.

Dynamic Capabilities Framework

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, well-

organised 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

Weaving and spinning technology-OECD (2004)

year

OE-rotor spinning

Auto ring frame

Ring frameE.I Ring frame

Jet

Projectile

Automatic loom

Fly shuttle

Self actor

Mule

Spinning jenny

Hargreaves

1750 1800 1850 1900 1950 2000

0,01

0,1

1

10

100

1000

0,01

0,1

1

10

100

1000Hand loom

Mech loom

Multiloom weaving

Northrop pirn changer

Development towards maturity

Automatic, standardized machinery

Require less skilled labour

Weaving

Spinning

Spinn.wheelSpinn.wheel

Working hours per 100m cloth

Working hours per kg yarn

Process technology

Process technology

Trend in 1950-80

1925 1950 1975 2000 2025

0,001

0,01

0,1

1

0,001

0,01

0,1

1

Ring frame

Auto ring frame

OE-rotor spinning

Trend in 1900-80

Trend last 2 observation

Trend in 1900-80

Automatic loom

ProjectileJet

Working hoursper kg yarn

Weaving and spinning technology-future trend (OECD, 2004)

Weaving

Spinning

Predicted innovative pattern

Working hours per 100 m cloth

Product Technology

1940’s 1960’s 1980’s 2000’s

Consumer Textiles

Technical Textiles

Functional Textiles

Multifunctional Textiles

Smart/Intelligent Textiles

Fibre technology

Processing technology

Finishing technology

Production technology

Advanced 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

Italy 31%

Others EU 69%

Italy31.39%

Others EU 68.61%

Turnover 2004

Employment 2004

Statistics

Statistics

0

10

20

30

40

50

60

70

2000 2001 2002 2003 2004 2005 2006

bn

Eu

ros

460

480

500

520

540

560

580

600

620

Em

plo

ymen

t (0

00)

Turnov er Production Exports

Imports Employ mentSistema Moda Italia

Textile & Clothing Sector

% of turnover 2006

90

92

94

96

98

100

102

104

2001 2002 2003 2004 2005 2006

Year

Eur

o

Productivity - Italy

Europe

Statistics

3%

61%

74%

21%

55%

39%

76%

63%

3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Agrotech&

Geotech

Meditech Hometech Buildtech Indurtech Mobiltech Clotech Sportech Others

Statistics: Technical Textiles

12.50% 12.34% 12.34%

2.83% 2.96% 3.15%

0.00%

2.50%

5.00%

7.50%

10.00%

12.50%

15.00%

2000 2005 2010

Italy vs Europe

Italy vs World

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

Trend in the Italian textile industry

Adopt ring frame faster than other European countries

•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

Market Change

Growing market as a result of unification of Italy (1860)

•Local couturiers began to gain market as French and English couture were unavailable during the war•Begin international market expansion

•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

Competitive Change

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

Structural Change

Increasing number of vertically integrated firms

A few large firms emerge as a result of mergers and acquisition

•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

MaturityMaturity

Year 1900’s-1920’s 1930’s-1940’s 1950’s – 1960’s 1970’s – 1980’s 1990’s – 2000’s

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

• 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

Maturity-trap

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

Performance

0

2000

4000

6000

8000

10000

12000

14000

1866

1921

1976

1986

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Per

son

s

0

10

20

30

40

50

60

70

Mil

lio

n E

uro

s

Employment

Net Profit

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

0

1

2

3

1961-1965

1966-1970

1971-1975

1976-1980

1981-1985

1986-1990

1991-1995

1996-2000

2001-2005

2006-2010

Product (design)

Product (technical innovation)

Process

7

CASE STUDY 2:

THE NETHERLANDS / TEN CATE, NV

Statistics

NL 1.3%

Others EU 98.70%

NL 2.1%

Others EU 97.9%

Turnover 2004

Employment 2004

Statistics

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

2001 2002 2003 2004

Year

Eur

oProductivity-Netherlands

Productivity-Italy

Textile, 60%

Clothing , 30%

Leather, 10%

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

0

200

400

600

800

1000

1200

1956 1960 1965 1970 1975 1980 1985 1987 1990 1991

Turn

over

Textile Industry

Total Manufacturing

0

20

40

60

80

100

120

1956 1958 1960 1965 1968 1970 1975 1980 1983 1985 1990 1991

Emplo

ymen

t Textile Industry

Total Manufacturing

Trend in the Italian textile industry

Preferential market agreement with the East Indies (Indonesia) was terminated in 1870.

•Increased labour costs•Early rapid decline

•Rapid decline continues•Extensive restructuring following MFAs

•Economic slow down 2001-2003•MFA is abolished in 2005

Market Change

Losing market protectionism in the Dutch colony of East Indies

•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

Competitive Change

Begin to compete with Japan over markets in Indonesia

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

Structural Change

•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

Year 1900’s-1920’s 1930’s-1940’s 1950’s – 1960’s 1970’s – 1980’s 1990’s – 2000’s

maturity Dematurity?

Evolution towards maturity

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

Performance

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Em

plo

ymen

t

0

5

10

15

20

25

30

35

40

45

50

Mil

lio

n E

uro

s

Employment

Net Profit

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

1700 188018601840 19801960194019201900 200220012000 2003 2004 2005 2006

Textile merchants

Industrial production techniques

Interlinings

Denim

Protective clothing

Sport/Outdoor

Geotextles

Technical Components

Armour

Artificial grass

1704 -1841

Mass production technique 1841-1980's; vertically integrated since 1957 Flexible manufacturing system 1980's -

1964-2005. From consumer interlinings to industrial filtration and non-woven fabrics

1964JV with Blijdenstijn Willink NV (Permess)

2005Divest Permess

1974-1999

1957Merger with KSW

1974Establish Hellenic SA

1998Close down Atlantic Mills; Sell Hellenic SA

Continuous product and technology development

1970Dyeing selling

Nomex

1996Collaboration with Southern Mills, Inc

2004Acquire Southern Mills

Functional digital printing

Product development from windsurfing rig & board to outdoor fabrics. Building capability in composites for windsurfing board.

19731973 License windsurfer

1941Buy JP Lorey Weaving Mills

1974Acquire Nicolon BV

1991Acquire Mirafi – TC Nicolon USA

2005Acquire Polyfelt, Inc

1994Buy Synbra

1983Acquire Plasticum BV

1986Acquire Bosta BV (Mega Valves)

1990Establish TC Armour

1998.1999Buy Ares, Bryte Technology

2007, 2008Acquire Phoenixx, Roshield, Composix, YLA & CCS

2005, 2006Divest Mega Valves, Plasticum, Synbra

Carpet backing Artificial grass

1987Acquire Thiolon

2000, 2001Acquire Nymplex, Polyloom

2007, 2008Acquire Mattex Leisure Industry, Edel Grass

2004EU Framework Digitex

2008Acquire Xennia Tech

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

0

2

4

6

8

10

12

14

16

1923 1967 1972 1977 1982 1987 1992 1997 2002 2007

Printing componentsTextile treatment

Sport/outdoorProcedures & devices

GrassComposites

PlasticsTextiles

Advanced textiles

DISCUSSION

Industrial maturity

• In terms of process technology, maturity began in the late 19 th 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

TEXTILE CLOTHING INDUSTRY

Active inertia Local search

• Active inertia

• Local search & local preferences

• Process innovation by adopting the latest equipment

• Existing markets

• Acquisitions to expand capacity and customer base

• A rather static competence

CustomersSuppliers

Distributors Competitors

Marzotto

Yarns and textile production

and technology

Marzotto-competence statics

Cloth makingproduction

Luxury brands

High qualityyarns and textile

productionand technology

1985

2005: Demerger

1836 1980 2005

Will continue to remain in the same markets,

Expansion to emerging Economies i.e.

China, Russia, IndiaMaturity trap

1993: Relocation and rationalisation

Emerging processing technology

De-maturity

CustomersSuppliers

Ten Cate

Distributors Competitors

TEXTILE-CLOTHING INDUSTRY

Geotextiles

Technical components

Protective clothing

Artificial grass

Armour

Emerging marketsNew materials

Synthetic fibres

High performance fiibres

Composites

Advanced, nano materials

Advanced chemicals

Non woven

Functional digital printing

New Distributors New Competitors

Entrepreneurial, dynamic capabilities

Creating new industrial boundaries

Ten Cate-competence dynamics

Textile productionand technology

Technical textiletechnology and

chemical processesPolymers

Composite materials

19741841 1964 1987

Functionalmaterials

2004

Dematurity

Developments on core concept, engaging emerging

technologies, potentially disruptexisting production system and

market-technology linkages

Evolution of Technology Transilience

High

High

Low

LowImpact on production system

Impact on market linkages

De-maturity

De-maturity

Maturity

Architectural phase

Niche creation phase

Revolutionary phase

Regular phase

Marzotto

Marzotto Ten Cate

Ten Cate

Ten Cate

Ten Cate

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