Alb Ani A Leather

Albania Shoe and Leather Sector Briefing pack and investment promotion toolkit June 2005

1

Contents 1 2

3 4

5

6

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Executive summary ....................................................................................4 1.1 About this report ............................................................................................4 1.2 Key findings and sales messages ...................................................................5 Global trends and location requirements .......................................8 2.1 Export trends..................................................................................................8 2.2 Foreign investment trends..............................................................................9 2.3 Key location factors .....................................................................................10 2.4 Investment decision process ........................................................................11 History and general background .......................................................12 Size and structure of the sector in Albania .................................13 4.1 Size of the shoe and leather sector...............................................................13 4.2 Growth of the shoe and leather sector..........................................................13 4.3 Structure of the shoe and leather sector .......................................................14 4.4 Geographic location of companies in the shoe and leather sector ...............16 Albanian export and import trends...................................................18 5.1 Export and import volume and growth ........................................................18 5.2 Export structure............................................................................................18 5.3 Import structure............................................................................................19 5.4 Export and import markets...........................................................................20 Investor case studies ..............................................................................21 6.1 Cofra / Albaco Shoes ...................................................................................21 6.2 Adelchi / Doni Anna ....................................................................................22 6.3 Fabrika e Kepuceve Tirana shpk (Filanto)...................................................23 6.4 Tomaificcio BAMA .....................................................................................24 6.5 GAMA .........................................................................................................25 6.6 Perparim Impex............................................................................................25 6.7 Albagroup ....................................................................................................25 6.8 MR.International sh.p.k ...............................................................................26 Competitive position and selling messages................................27 7.1 Operating costs.............................................................................................27 7.1.1 Labour Costs ..............................................................................................27 7.1.2 Real estate costs .........................................................................................28 7.1.3 Utility costs ................................................................................................28 7.2 Human resources..........................................................................................29 7.2.1 Population and unemployment.....................................................................29 7.2.2 Tertiary and vocational education ................................................................29 7.2.3 Industrial relations ......................................................................................30 7.3 Infrastructure and logistics...........................................................................30 7.3.1 Logistics ....................................................................................................30 7.3.2 Transportation infrastructure .......................................................................32 7.3.3 Energy infrastructure ..................................................................................32 7.3.4 ICT infrastructure .......................................................................................33 7.4 Sites..............................................................................................................33 7.5 Economic performance and stability ...........................................................33 7.5.1 Economic indicators for Albania..................................................................33 7.5.2 Comparative economic performance of Albania ...........................................33

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8

Investment opportunities and issues..............................................35 8.1 Strategic framework.....................................................................................35 8.2 Market opportunities....................................................................................35 8.3 Location attributes and competitive position...............................................36 8.4 Target sectors and location alignment .........................................................36 8.5 Product development ...................................................................................37 8.6 Sales & marketing strategy ..........................................................................38 9 Company target lists ................................................................................39 10 Investment process and key contact points...........................40

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1

Executive summary

1.1

About this report

This report contains a comprehensive overview of the Albania shoe and leather sector. It examines global trends in the sector and Albania’s competitiveness as an investment location and export platform to serve European and global markets. Key selling messages are provided for specific areas where Albania is competitive and a target list of potential foreign investors is provided. Recommendations for improving the competitiveness of the shoe and leather sector in Albania are also provided. The purpose of the shoe and leather briefing pack and investment promotion toolkit is to provide representatives of the Albanian Foreign Investment Agency (ANIH) and related stakeholders with support material, factual information and competitive arguments to assist in the day-to-day roles of: • • •

Dealing with specific enquiries; Reacting to general promotion opportunities; Producing detailed responses and promotion material based on factual data.

The briefing pack and investment promotion toolkit provides comparative data on specific issues that may be raised by potential shoe and leather investors or can be incorporated in presentations and other promotional material to reinforce particular points that favour investing in Albania. The briefing pack and toolkit is divided into 10 main sections, each of which is then further broken down into specific areas or issues. The briefing pack and toolkit should be used as a source of information for presentations to clients. There are, however, significant parts of the briefing pack and toolkit that should not be used in client presentations. It is the responsibility of individual investment promotion agents to ensure that confidential parts of the briefing pack and toolkit are not used. Client presentations should be tailored to the needs of each client. The toolkit contains a large amount of information, but investment promotion agents should be highly selective when preparing information for clients. A small number of key messages, backed up with data tables, can be far more effective than a large amount of unfocused information. The toolkit is based on extensive research conducted by OCO Consulting Ltd. with the dedicated support of Edmond Alla from ANIH, completed in May 2005. Research was funded by the EU-UNDP CARDS programme, coordinated by Gavin Jones. We would like to thank the cooperation of ACIT in preparing the report. The research included: • • • •

Developing a database of 50 shoe and leather companies in Albania; based on an existing audit conducted by ACIT Interviews with leading investors; Benchmarking Albania against competitor locations; Collecting specific sectoral information; and

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•

Development of content for ‘Albania: Invest in Europe’s leading shoe and leather location’ inward investment marketing brochure.

For more information on this research project please contact Edmond Alla at ANIH. This sector briefing and investment promotion toolkit, together with the database and brochure highlighted above, provide investment promotion agents with a valuable operational tool. It offers ANIH the opportunity to leap ahead of its competitors in knowledge management, allowing easy development of client-specific presentations whilst retaining consistency across the investment promotion network. Used properly, it will provide for a more effective use of time, and will help in the objective of promoting Albanian as the investment destination of choice for shoe and leather companies. June 2005

1.2

Key findings and sales messages

This study has identified key selling messages for attracting shoe and leather companies to invest in Albania: ¾ ¾ ¾ ¾ ¾ ¾

Fastest growth in exports worldwide over the last five years 1 6th largest exporting country of shoe uppers worldwide Lowest labour costs in the Balkans and Eastern Europe Over 20,000 skilled workers in the industry 100 shoe and leather companies already here Turnaround your design and export to the EU market in just 24 hours

European export platform Albania is one of the leading shoe and leather producers in the world. Albanian exports of footwear have doubled in the last three years, and from 2000-2004 Albania’s shoe and leather exports have grown more than double the growth of world exports in the sector. Albanian shoe and leather exports are currently growing by 2030% per annum. Nearly 100 shoe and leather companies in Albania produce 1.2 million pairs of shoes per month. Albania is the second largest exporter of shoes to Italy - by far the leading exporter of shoes in the world – and Albania is an ideal location to export to the Italian, Balkan and European markets. Foreign investors in Albania are also increasingly exporting to non-European markets. With free trade agreements being signed with the Balkan countries and the EU, Albania offer unrestricted exports opportunities. Albania is a particularly attractive location for companies producing and exporting: ¾ Safety shoes for export to global markets ¾ All types of shoe production and assembly for Balkan and European markets

1

Of shoe uppers and among the major shoe exporting countries.

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¾ Leather processing for the Albanian shoe producers and for the European market ¾ Leather accessories for the Balkan and European market

Highly competitive operating costs Labour costs in the shoe and leather sector in Albania are one-tenth the cost of Italy and one-fifth the cost of Greece, at $150-200 per month. Albania is the most competitive location in Europe for shoe and leather production. As the table below shows, wages in Albania are one-third to one-half the level of other Balkan and East European countries. Other operating costs are also competitive in Albania, with industrial sites available from around $35 per square metre – below the cost of industrial sites in Eastern Europe or other Balkan countries. Electricity and water costs are also at or below that of other countries.

Large pool of skilled and flexible labour Albania has a young population of 3.2 million with an official unemployment rate of 15%. With over 20,000 shoe & leather workers and over 12,000 engineering vocational and tertiary students Albania offers an excellent supply of workers for shoe and leather operations. The number of students in Albania is growing rapidly, ensuring a continuous supply of technical workers. Almost all the shoe and leather plants in Albania have no trade unions and the labour force is highly rated by investors for its commitment to quality and flexibility. In leading shoe manufacturers in Albania, 50% of employees have been at the factory for over 5 years, demonstrating the stability of the workforce.

High quality, just in time production Albania offers investors in leather/shoes excellent proximity to the Italian, Greek and Balkan markets. Indeed, Albania has a location advantage over many of its Balkan neighbours as the country has direct access to the Mediterranean Sea and is very close to the Italian and Greek markets. Foreign investors in Albania can turnaround European orders quicker than any other country. According to Cofra/Albaco shoes: “Delivery time is very important to the client. We have five days maximum turnaround time, and can deliver an order even within 24 hours to Italy.” Quality levels in Albanian shoe and leather factories are high, with many companies having ISO9001 certification. Companies are adopting advanced production techniques, and some of the most advanced shoe factories in the world are in Albania. With Albania recording the fastest growth in shoe exports in the world, there are growing opportunities for leather processing companies to invest in Albania and service JIT the raw material needs of the major shoe manufacturers.

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Infrastructure and site availability Albania offers investors many potential location options, with several regions in Albania specialising in the shoe and leather sector. The capital city, Tirana, has the highest concentration of shoe and leather companies, primarily focusing on shoe assembly and production. The nearby port city of Durres is also strong in leather accessories/clothing and offers excellent accessibility for manufacturers across the country, Leather-processing companies are distributed across the country, primarily in Berat, Durres, Kavaje, Korca and Tirana.

Further product development required While Albania offers shoe and leather investors a strategic, cost competitive location, there are numerous weaknesses in the product offer, which need to be addressed if Albania is to compete for investment in the short and long-term. In the short-term, addressing the lack of site availability and information on sites is critical and energy reliability must be improved. In the longer-term, developing the indigenous design and branding capability of the sector is recommended.

Sales and marketing strategy A one-year marketing plan for promoting investment in the shoe and leather sector is needed. The marketing plan will act as a template for coordinated promotion of the sector and provide consistent sales messages, coherent marketing activities and actions together with performance targets.

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2

Global trends and location requirements

The shoe and leather sector is a highly competitive and increasingly globally integrated. The sector is mature, with low growth in global exports and low volumes of foreign direct investment projects in Europe. Companies are increasingly driven towards locations that offer low cost, high quality production and at the same time rapid turnaround of orders.

2.1

Export trends

Graph 1 below shows the volume of growth in world exports of by key primary product area of the shoe and leather sector. We can see that each product area has recorded sustained growth in world exports. Footwear exports reached over $55.2 billion in 2004, leather articles $28.5 billion and raw hides and skins almost $30 billion. The growth of footwear exports has averaged 4.5% per annum, leather articles 6.4% per annum and raw hides and skins 8.7%. Therefore, while the sector is growing in terms of global exports, growth rates are not high. Albania would need to achieve growing world market share of exports if it is to achieve double-digit export growth. Graph 1: World shoe and leather exports by primary product area (2000-2004) $bn 60 55.2

49.9

50

47.7 48.5

46.4

40 30

28.5 24.9 21.7

20

18

25.1

23.3

25

24.9 22.8

22.3 Footwear, gaiters and the like, parts thereof Raw hides and skins (other than furskins) and leather Articles of leather, animal gut, harness, travel goods Furskins and artificial fur, manufactures thereof

10 3.2

3.8

4.1

4.3

2002

2003

5.2

0 2000

2001

2004

Source: International Trade Centre (Products 64, 41, 42, 43) - Imported Value

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2.2

Foreign investment trends

The number of FDI projects in shoe and leather manufacturing is very low. As can be seen in Graph 2 below, only 4-5 Greenfield FDI projects per annum are currently being recorded in Europe, excluding equity and privatisation projects. This compares with 350 FDI projects in the IT & Software projects being recorded each year in Europe. Graph 2: Shoe and leather foreign direct investment projects 1997-2004

6 No. in developing countries

No. of FDI projects

5

No. in developed countries 4 3 2 1 0 1997

1998

1999

2000

2001

2002

2003

2004

Source: OCO Consulting, LOCOmonitor

In terms of source markets for investment, companies headquartered in the European Union have been the major source of FDI projects, especially companies from Italy and Germany. In fact, the EU is the leading source of FDI projects in the shoe and leather sector worldwide. FDI projects from Asian and East European investors are expected to grow. The majority of FDI projects in Europe are locating in developing countries in Europe. Hungary has been the most successful country in Europe in attracting shoe and leather projects. Over 20% of FDI projects in the sector recorded in Europe from 1997-2004 have located in Hungary, with Slovakia close behind. Combined, 40% of FDI projects in Europe have located in Hungary and Slovakia. Balkan countries have also attracted FDI projects. Romania attracted a project from Alpina in 2004, and in 2002 Croatia and Bosnia and Herzegovina attracted projects by Boxmark and Olip Italia respectively. The project in Bosnia is a 600-job factory and the project in Croatia is a 2500-job factory. In global context, competition for investment is intensifying. China, Vietnam and India are rapidly emerging, and China and Vietnam are currently the leading locations for

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FDI projects worldwide in the sector. Latin America – especially Argentina and Brazil – are also very competitive with their huge raw material (meat/leather) resource, advanced manufacturing capabilities and large domestic markets.

2.3

Key location factors

In shoe assembly and production, Albania has been most successful in attracting shoe operations focusing on the production of mid-quality leather shoes serving the Italian and increasingly regional markets. The key factors determining investment location for this type of operation are: •

Low labour costs: This is a highly competitive, labour-intensive sector and companies are increasingly looking to relocate to the lowest cost locations. Companies will are interested in not only salary levels but also the additional costs of employing workers (taxes, social security, pensions etc).

•

Availability of a suitably skilled workforce: An average factory a foreign investor is likely to establish will employ around 500 people, and could be as high as 1000. Joint ventures with local companies are likely to be much smaller. Therefore, the availability of a suitably skilled workforce is a critical location requirement. Companies will want to recruit semi-skilled and skilled workers with experience in the sector, and are attracted to locations that offer a large pool of available workers. Companies will also require a high degree of flexibility in the hiring and firing of workers and in adopting the most productive working practices.

•

Just-in-time production: Companies are looking for rapid turnaround of orders, often only a few days from design to delivery. For operations requiring JIT production, it essential to be located close to key markets. JIT production requires that the transportation infrastructure and logistics allow for speedy and reliable delivery to export markets.

•

Production Quality: To produce mid-range shoes JIT requires a high level of quality in the production process. Foreign investors will seek ISO9001 quality accreditation. The more advanced operations are increasingly making use of automated machines, assembly lines and CAD-CAM (computer aided design and manufacturing).

•

Availability of suitable sites and premises: A 500-600 job shoe factory is likely to require a site of around 25,000 square metres. Companies will be looking for available industrial sites, with good quality infrastructure.

•

Energy supply: Shoe assembly and production requires a reliable supply of electricity and water.

•

Investment procedures: Companies will be looking for fast and transparent approval of their investment and operationalisation. Good governance in investment facilitation can be a critical factor in winning an investment project.

Leather processing companies will have similar location requirements. However, for leather processing companies are also attracted to locations with high quality raw material (leather) and potential customers (shoe factories) in the host country.

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Leather processing companies are also attracted to locations that have less strict environmental legislation compared to EU or USA.

2.4

Investment decision process

A shoe and leather company will typically be driven to invest overseas primarily to lower costs. Companies may also seek to invest overseas to provide better access to export markets (e.g. an Asian company investing in Europe to access European markets with JIT production) or to access high potential domestic markets. However, for all investment motives, low operating costs are critical.

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3

History and general background

Together with textiles/garments, the shoe and leather industry was one of the main industries of the Albanian economy during the 1960-1990 period. These industries were state-owned enterprises and they operated in the context of a socialist economy. Production included a wide range of products of the value-added chain including leather and finished shoes. Domestic demand was supplied by domestic production, and exports were managed by a single governmental agency. After 1990, these enterprises went through a privatisation process. Activities concentrated on outward processing production of footwear uppers, which comprise a leading segment for Albania’s exports. The leather industry, supported by the increasing number of bovines, has experienced a growing level of exports of semifinished and finished products. However, national trademarks have not emerged and relations with marketing channels are poor, except for re-exported products (99% of shoe uppers are exported to Italy), which are marketed by mainly Italian investors and foreign dealers.

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4

Size and structure of the sector in Albania

4.1

Size of the shoe and leather sector

Key vital statistics on the size of the shoe and leather sector in Albanian are: 9 Nearly 8,000 factory employees in 2003 (up from 4,500 in 2000) 9 Almost 100 shoe and leather companies in 2003 (up from 62 in 2000) 9 1.2 million pairs of shoes produced per month 9 $178 million exports in 2004 (up from $78 million in 2000) 9 6th largest exporting country of shoe uppers worldwide in 2003 9 Fastest growth in exports since 1999 out of all major shoe upper exporting countries Source: Employment and company data from the national statistics agency of Albania (INSTAT) and export data from the International Trade Centre (ITC), for product 640610.

The number of factory workers significantly underestimates total employment in the shoe and leather sector. A recent survey of 35 shoe and leather companies found total direct employment of 7,300 workers. In total, there are 96 shoe and leather companies in this sector. Taking also into account the intensive use handiwork whereby shoe manufacturers outsource work to households, total employment in the sector is cautiously estimated to be at least 20,000 workers.

4.2

Growth of the shoe and leather sector

The shoe and leather sector comprises one of the most economically and socially important sectors in Albania, accounting for around 14% of industrial employment in Albania and 10% of industrial output. The industry has recorded strong export growth and a trade surplus. Shoe and leather exports have increased by 230% from 2000 to 2004 (Source: International Trade Centre), more than double the growth in world exports. Table 1 below provides key statistics on the overall growth of the sector, which has been impressive.

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Table 1: Growth of the shoe and leather sector 1999

2000

2001

2002

2003

Number of firms

68

62

76

72

96

Output (Leke million)

3,683

4,498

5,530

5972

6,635

Growth in output (%)

-

22.1

22.9

7.9

11

Exports (€ million)

68.4

55

59.6

83.3

128

Export growth (%)

-

-19.6

8.4

39.8

53

Imports (€ million)

49.4

40.4

58.8

77.5

104.48

Import growth (%)

-

-18.2

45.5

31.8

34.8

Trade balance (€ million)

19

14.6

0.8

5.8

23.47

Employment (no.)

4,431

4,560

5,540

5942

7844

Employment growth (%)

-

2.9

21.5

7.2

32

Average pay pcm (Leke)

10,734

11,708

14,056

140

150

Pay growth (%)

-

9.1

20.5

0

7.1

Source: INSTAT

4.3

Structure of the shoe and leather sector

Based on a survey conducted by ACIT in November 2004 of the 48 leading shoe and leather companies in Albania (comprising over 90% of total employment in the sector), investors in Albania have concentrated on shoe production and assembly. As Graphs 3 and 4 below show, there has been a particular specialisation on the production of safety shoes, a product are that accounts for 10% of companies and 18% of employment in the sector. There are also a high proportion (25%) of companies engaged in leather processing. However, employment generated by these companies is small due to much higher capital-intensity when compared to shoe assembly and production.

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Graph 3: Product specialisation in the Albanian shoe and leather sector (number of companies, 2004)

Shoe Production (Safety) 10% Shoe Production (General) 23%

Leather accessories/Clot hing 6%

Leather processing 25%

Other 4%

Shoe Assembly 32%

Source: EU-UNDP, derived from ACIT database of 48 companies

Graph 4: Product specialisation in the Albanian shoe and leather sector (number of employees, 2004)

Shoe Production (Safety) 19% Shoe Production (General) 41%

Leather accessories/Clot hing 2%

Leather processing 1% Other 1%

Shoe Assembly 36%

Source: EU-UNDP, derived from ACIT database of 7,300 employees in 35 companies

Based on interviews conducted with 8 leading shoe and leather companies in February 2005 (see Section 6 for profiles of the companies), the following key metrics for the shoe and leather sector in Albania were provided: • • • •

Average establishment date in Albania is 1995 One-quarter of investors are foreign owned and another quarter are joint ventures The average investment amount is $5.4 million Average employment per factory is 455

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• •

4.4

Average annual sales per factory are $6.1 million 100% of production is exported

Geographic location of companies in the shoe and leather sector

Based the ACIT survey (see section 4.3), regions across Albania have attracted shoe and leather investors. As the Graphs 5 and 6 below show, 44% of companies and 63% of associated employment is located in the capital city Tirana. The port city of Durres and Shkoder are the next most important regions in Albania. Durres accounts for one in six shoe and leather companies and while Shkoder accounts for nearly one-fifth of employment in the sector.

Graph 5: Geographic location of investors in the Albanian shoe and leather sector (number of companies, 2004) Berat 5%

Durres 17%

Tirana 44%

Elbasan 5% Fier 2%

Shkoder 5%

Rrogozhine 2%

Kruje 5%

Korca 10%

Kavaje 5%

Source: EU-UNDP, derived from ACIT database of 48 companies

Graph 6: Geographic location of investors in the Albanian shoe and leather sector (number of employees, 2004)

Durres 8%

Elbasan 0%

Fier 1% Korca 3% Kruje 6%

Tirana 63%

Shkoder 19%

Source: EU-UNDP, derived from ACIT database of 7,300 employees in 35 companies

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Companies in Tirana are concentrated primarily on shoe assembly and production, while Durres is strong in leather accessories/clothing. Leather processing companies are distributed across the country, primarily in Berat, Durres, Kavaje, Korca and Tirana.

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5

Albanian export and import trends

5.1

Export and import volume and growth

The Albanian shoe and leather sector has achieved rapid export growth. Exports grew by 9% per annum from 1999-2002. In 2003 exports grew by 32% and in 2004 by 23%. The shoe and leather sector accounts for over 30% of Albanian total exports. Imports of shoes and leather have also grown rapidly, although Albania has achieved a consistent trade surplus in the sector. In 2004, the trade surplus increased to record levels, which reflects record export performance and gradually declining dependence on imports. Having said this. The Albanian shoe and leather sector still primarily assembles or manufactures shoes our of imported raw materials and inputs. Graph 7: Albanian shoe and leather exports and imports (2000-2004) $m 200 180

178.386

160 144.617

140

126.894 118.617

120 109.736

100 80 60

97.243 78.614

91.273

Exports

73.725

Imports

53.684

40 20 0 2000

2001

2002

2003

2004

Source: International Trade Centre (Products 64, 41, 42, 43)

5.2

Export structure

The assembly and production of footwear dominate Albanian shoe and leather exports, as Graph 8 shows. Footwear accounts for 90% of Albanian total shoe and leather exports, and is driving the continued growth in the sector, with over $165 million exports in 2004. Exports of footwear have doubled in just 3 years. The only other significant product area for exports is raw hides, skin and leather, with exports of over $12 million in 2004. Growth of this product area has been much lower than of footwear, although in 2004 export growth of 20% was achieved and there have been recent foreign investors in the sector that will raise capacity.

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Graph 8: Albanian shoe & leather exports by primary product area (2000-2004) $m 180 165.237

160 140

133.379

120 100

94.978

86.429

80 70.217

60

Footwear, gaiters and the like, parts thereof Raw hides and skins (other than furskins) and leather Articles of leather, animal gut, harness, travel goods

40

Furskins and artificial fur, manufactures thereof

20 0

10.499

7.667 0.332 0.398

0.25 0.065

2000

11.228 3.472

2001

0.058

2002

10.247 0.911

0.08

2003

12.342 0.363 0.444

2004

Source: International Trade Centre (Products 64, 41, 42, 43)

5.3

Import structure

Albanian shoe imports, as shown in Graph 9 below, are composed primarily of footwear (for assembly in Albania) and raw hides (for manufacturing in Albania). Raw hides are the fastest growing imports area, indicating the growing demand from Albanian shoe manufacturers. Graph 9: Albanian shoe & leather imports by primary product area (2000-2004) $m 80 70

67.55 63.22

60

56.65 54.36

50

52.46

46.18

40 34.62 34.72

30

25.64

20

Footwear, gaiters and the like, parts thereof Raw hides and skins (other than furskins) and leather Articles of leather, animal gut, harness, travel goods Furskins and artificial fur, manufactures thereof

17.54

10 0

0.36

1.07

2000

1.22 0.69

2001

2

2.68 0.29

2002

2.22 0.26

2003

0.47

2004

Source: International Trade Centre (Products 64, 41, 42, 43)

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5.4

Export and import markets

Albania’s primary shoe and leather export product is shoe uppers, which accounts for 80% of total shoe and leather exports. Albania has a 4% world market share of exports in this product area and is the 6th biggest exporter worldwide. As we can see in Table 2 below, 99% of Albanian exports are to Italy, destined for reexport to other countries from Italy. In 2003, Albanian exports to Serbia and Montenegro approached $1 million, with a rapid growth in exports. Table 2: Albanian export markets in shoe uppers

Country

Albanian export value 2003 (US$ thousand) 115,076

Serbia & Montenegro

887

1

264

Greece

95

0

98

Panama

86

0

-81

Turkey

21

0

NA

Germany

17

0

113

Italy

Share of Albania exports (%) 99

Albanian Export growth in value between 2002-2003 (%, p.a.) 32

Source: International Trade Centre (Product 640610)

The trend in exports in reflected in imports, with 99.7% of shoe uppers imported from Italy in 2004. The Albanian shoe and leather industry can therefore be said to be an extension of the Italian sector, and Albania is almost totally dependent on Italy as an export and import market, reflecting the fact that the Albania show and leather is Italian controlled and that Italy serves as the export transit hub for made in Albanian products.

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6

Investor case studies2

6.1

Cofra / Albaco Shoes

Interviewed:

Shpresa Kociraj, Administrator Tel: 00355 - 48 - 300429 Fax: 00355 - 48 - 300428

Email: Website: Address:

[email protected] www.cofra.it Rr. "Ali Demi", Shkoze, Tirana, Albania

AlbacoShoes Company was founded in December 1992 and initiated its economic activity in July 1993. The company's Albanian operation began with the production of uppers for sport shoes. It has steadily expanded as the years have passed, with a major reinvestment in 2001 The company started to raise its ambitions based on an efficient partnership with her partner, Cofra Ltd. with headquarters in Barletta, Italy. The main products of the company are PVC safety shoes. 3.3 million shoes were produced in 2004, up from 255,000 in 1993. Capital investment to date is around 4 million USD and the number of direct employees in the company is approaching 1000. Exports to Italy comprise 100% of sales, which are in the $10-$20 million bracket. Albaco typically produces small quantity, multi-model matches, and new models are produced every year. Shoes are sold to the end-user for €15 to over €200. Currently the company produces a more complicated assortment of safety footwear products. This change was made after taking in consideration market research on long term trends in the international market and production advantages offered in Albania. The strategy of Albacoshoes / Cofra has been to complete the entire production process, of very intricate and complicated shoe designs, entirely in the Albanian factory. This strategy was accompanied with significant investments in machinery and technical processes but also in human resources. It is important to emphasize 2

Information for case studies 6.1 to 6.3 was also sourced from ACIT.

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that “Albacoshoes” ltd. has been certified with Quality Management Certified ISO 9001:2000- Certificate nr. 52. Production processes are advanced, and include assembly lines with new process innovations introduced from the automotive industry and robotic equipment. Albaco believes that its operation is among the most advanced shoe plants in the world. Albaco’s managers are pointing out that Italian investors are increasingly assessing location competitiveness in deciding in which country to invest or to form partnerships in. Albaco is developing a 10-year investment plan for Albania. This plan will lead to a major expansion of production and safeguard existing jobs, but it depends on securing a long-term contract with an Italian customer and securing a site in Albania. Albaco increasingly sees the Albanian market as an opportunity for their products. In 2005 the company will import new machinery and all its products will be finished in Albania. Among the reasons why they invested in Albania are the geographical position, low labour cost, quality levels, experience of the workforce and companies in the sector and the flexible and JIT production systems possible. The company has its own training school and 50% of employees have been with the company for over 5 years, demonstrating the stability of workforce. Cofra is an Italian company, which included in its product development and research philosophy the careful protection of workers' feet, from its early stages. The company founded by Mr. Ruggiero Cortellino in 1948, produced shoes in a basic workshop, out of recycled tools and raw materials and truly evolved so that Cofra finds itself now as the leader of the specialist footwear sector, and is known not only in Italy, but also in all of Europe. Cofra and AlbacoShoes have achieved a successful partnership in the recent years. One advantage is that within the special footwear sector the company prides itself by delivering extra quick service on incoming orders. This is not possible with Asian or even production within most of the Balkan countries, but is a reality with a production facility located in Albania. Albaco believes that the leather and shoe sector in Albania is very experienced and is becoming more and more competitive and can meet the challenges posed by global competition if the barriers to expansion, such as sites and energy, are addressed.

6.2

Adelchi / Doni Anna

Interviewed:

Donika Mici, Owner Tel: 00355 - 4 - 258800 Fax: 00355 - 4 - 258800

Address:

Rruga e Durresit, prane ktheses se Kamzes, Tirane, Albania

The Albanian-Italian partnership of Italian firm Adelchi with Donianna is the living proof of a “win-win” philosophy. This partnership was initiated as a small joint venture and has grown today into three large sized factories, with a total daily production of 10,000 pairs destined mainly for the US market and customers such as: Federated Department Stores, Kenneth Cole, Rack Room Shoes, etc. Shoes produced by this joint venture are proudly branded as Albanian origin. The working system of this partnership has been as follows: the Italian partner takes care of the designs and customer contact and sources the specified raw materials,

22

while the Albanian partner supervises production, exporting, and all management aspects taking place in Albania. The production takes place following to the Just-inTime system. “Doni Anna” was established in Tirana June 1992, and was among the first Italian investors in Albania. A major reinvestment took place made in 1998. The company is producing Shoes and Uppers, and is partly financed by foreign capital. Total capital invested is around 6.5 million USD and the number of direct employees at its main factory is over 1000. The company is considering reinvestment in 2005, building a new factory with an investment of 8 million USD. 100% of output is exported, with a value of $10-15 million per annum. Exports go to Italy, Canada and the USA. The newest factory established by this partnership is Albanian Shoes Corporation, which will purchase and sell goods under Albanian origin, directly to US customers. The sales of Albanian Shoes Corporation are projected to reach 20 million euros. The Adelchi / Donianna partnership has been successful due to the faith that Adelchi had in the opportunities that Albania offers to the footwear sector, as well as to the dedication and persistence of the Albanian partner, Ms. Mici, to move the company forward. In 2004, investments of this company reached over 1.6 million Euros. In the meantime, Albanian Shoes Corporation will further investment 2 million Euros for the construction of two buildings of 5 thousand square meters each for the production of shoes. An additional number of 600 persons will be employed and machinery with a value of 3 million Euros will be installed. The owner of “Doni Anna” thinks that EU enlargement will improve the cost competitiveness of Albania. The good quality of the Albanian leather is also seen as an opportunity for the further development of the sector. Ms. Mici has been selected from UNECE (United Nations Economic Commission for Europe) as one of the candidates at the Most Innovative Entrepreneur of the Year www.unece.org/indust/docs/enter.sme.1msi.pdf

6.3

Fabrika e Kepuceve Tirana shpk (Filanto)

Interviewed:

Email:

Gianpiero Pelegrino, Administrator Tel: 00355 - 48 - 202306/7 Fax: 00355 - 48 - 202305 Tel: +385 35 405320 Fax: +385 35 405 325 [email protected]

Address: Rr: "Don Bosko", Fabrika e kepuceve, Tirane Filanto is an Italian company whose founder knew how to transform the passionate Italian spirit into a story of shoemaking tradition. Originally founded by Mr. Antonio Filograna, as a small-scale business with only 3 employees it has evolved today into a large-scale business with over 6,000 employees; managed by a group of experts assuring high standard of service and quality. The company has a world wide strategic focus and a strong central marketing organization.

23

“Fabrika e Kepuceve Tirana shpk” was established in 1991, as a 100% foreign owned investment. A major reinvestment was made in 1997. The company is producing Shoes and uppers. Total capital invested in Albania is around $30 million USD and the number of employees in the factory is over 1000. In total 1,500 staff are employed in two Filanto branches in Tirana and many other employees work for Filanto in everal. Exports are in the $15-$25 million bracket. The market for “Fabrika e Kepuceve Tirana shpk” products is Italy. From Italy, products are distributed in the EU. The Balkans is also a possible export market, as with the 2007 Balkan FTA the size of the single market will be 55 million consumers. 10,000 pairs of shoes are produced daily in Albania to be exported to Italy and other countries. Filanto's success in Albania is primarily based on strong expertise of its managers who have taken advantage of Albania's proximity to Italy and the Balkan countries, as well as Albania's labour costs. Filanto considers Albania a promising country and therefore is investing in expanding more production facilities in Albania. “Following the Italy-India-Japan triangle in Asia, we are working to do the same triangle production-distribution scheme with Albania as the production country and the whole Balkan countries as the consumers market for our products" (manager of Filanto, Albania). The preferential customs duties in force between Albania and the regional countries, as well as between Albania and EU, support investment plans for the future. For more details on Filanto please Consult www.filanto.it.

6.4

Tomaificcio BAMA

Interviewed:

Edmond Bakaj, Administrator Tel: 00355 - 4 - 363213 Fax: 00355 - 4 - 363213

Email: Address:

[email protected] Rruga Ura (ish-OAN), Tirana, Albania

“Tomaificio BAMA” was established in Tirana in October 1995 as a 100% owned foreign investment. A major reinvestment was made in 2001. The main products of the company are safety work shoes. Capital investment is around $1 million USD and the number of employees in the company is nearly 282. The parent company of “Tomaificio BAMA” is the Italian company “Bikup”. Among of the factors related to the reasons why they invested in Albania are the geographical position, low labour cost, quality, experience and flexibility. The market for “Fabrika e Kepuceve Tirana shpk” products is Italy. From Italy the products are distributed in the EU.

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6.5

GAMA

Interviewed:

Hyget Borova, owner Tel: 00355 - 4 - 228374 Fax: 00355 - 4 - 228374

Address: Rr: "Siri Kodra", nr 55, Blloku i Magazinave, Tirane “Gama sh.p.k” is a locally owned company and was established in Tirana June 1996. The company produces finished shoes, shoe uppers and bags. The number of employees in the company is around 100. The emphasis is on producing high quality products for export to Italy to be competitive with China and India. From Italy, Gama’s products are distributed in the EU market. Also a small part of the product is distributed in the domestic market.

6.6

Perparim Impex

Interviewed:

Luljeta D’Derrico, Luigi D’Errico, owners Tel: 00355 - 4 - 230038 Fax: 00355 - 4 - 230038

Address: Rr. e Kavajes, ish-kombinati Alikelmendi, Tirane, Albania “Perparimi Impex” is a local company and was established in Tirana June 1996. The company is producing shoe uppers. The number of employees in the company is around 80. The market for “Perparimi Impex” products is Italy. From Italy the products are distributed in the EU market.

6.7

Albagroup

Interviewed:

Dritan Gjoni, Administrator Tel:

+355 68 205 6217

Address: Rr. Mine Peza, prane hetuesise, Tirane, Albania “Albagroup” was established in Tirana June 1997. The company is producing shoe uppers. The number of employees in the company is around 100. The company is 100% foreign controlled, by Italian parent company River Group. The market for “Albagroup” products is Italy. From Italy the products are distributed in the EU market. Among of the factors related to the reasons why they invested in Albania are the geographical position, low labour cost, experience and flexibility.

25

6.8

MR.International sh.p.k

Interviewed:

Luljeta Kucuqi, Administrator

Email:

Tel: 00355 - 52 - 24538 Fax: 00355 - 52 - 25059 [email protected]

Address: Fabrika e lekures, Vaqarr, Durres, Albania “MR.International sh.p.k” was established in Tirana June 1998. The company processes leather for fine shoes and garments. Capital invested is around 1 million USD and the number of employees is 15. The company is a joint venture with, with most of the foreign capital from Italy. Among of the factors related to the reasons why they invested in Albania is the geographical position, low labour cost and another factor is the good leather quality. Export-development is the key strategy of the company, with the leather being processed and then exported in Italy. There are also plans for import-substitution.

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7

Competitive position and selling messages

7.1

Operating costs

7.1.1

Labour Costs

Fieldwork shows that it costs around USD150-200 per month to employ a semiskilled worker in the shoe and leather sector - approximately one-tenth the cost of Italy and one-fifth the cost of Greece. Labour costs for each employee category in Albania are shown in Table 3 below. Table 3: Labour Costs in the Leather/Shoe Sector in Albania (2005)* Position Management

Monthly cost (LEK) 110,000

Monthly cost (USD) 1,130

Professional

62,000

640

Technical

50,000

515

Skilled

26,000

270

16,000 Unskilled to Semi-skilled Source: Interviews with 8 leading investors in February 2005

16 *excludes social security

Albanian labour costs are very competitive in regional context. The Table 4 shows the gross annual salary in manufaturing in Albania compared to other Balkan and East European countries. Wages for unskilled workers in Albanian half to one third the level of most Balkan and East European countries. Labour costs for technical, professional and management employees are also highly competitive and Albania is the lowest cost location in the Balkans and Eastern Europe. Table 4: Gross annual salary in manufacturing (USD) ManagementProfessional Technical Skilled Albania 13538 8123 6031 3569 11967 10649 6497 5715 Serbia & Montenegro 22521 14250 12600 7667 Bosnia-Herzegovina 26251 14214 10797 5701 Macedonia 35283 22317 16862 11408 Croatia 21189 NA 11273 5152 Slovak Rep. 21193 NA 12687 9389 Czech Rep. 37170 NA 17860 8744 Hungary Source: MIGA, World Bank Enterprise Benchmarking Programme, 2005

Unskilled 2215 4293 5467 4079 7714 3699 6583 7618

Albanian labour costs are similarly highly competitive when taking into account the full cost to the employer (i.e. including social costs) of employing staff, as Table 5 shows.

27

Table 5: Total annual labour cost to employer in manufacturing (USD) ManagementProfessional Technical Skilled Albania 17695 10617 7882 4665 13881 12353 7537 6630 Serbia & Montenegro 25111 15889 14049 8548 Bosnia-Herzegovina 34652 18763 14252 7526 Macedonia 41352 26155 19763 13370 Croatia 28647 0 15241 6965 Slovak Rep. 28611 0 17128 12675 Czech Rep. 49622 0 23843 11673 Hungary Source: MIGA, World Bank Enterprise Benchmarking Programme, 2005

7.1.2

Unskilled 2896 4980 6095 5384 9041 5001 8887 10170

Real estate costs

The cost of an industrial site in Albania is lower than in competitor locations, as the Table 6 shows. Table 6: Cost of an industrial site (USD) Cost of an industrial site Cost in USD per m² Albania 35 177 Serbia & Montenegro 52 Bosnia-Herzegovina 60 Macedonia 215 Croatia 45 Slovak Rep. 49 Czech Rep. 62 Hungary Source: MIGA, World Bank Enterprise Benchmarking Programme, 2005

7.1.3

Utility costs

The cost of electricity for industrial use in Albania is slightly above the average for the Balkans. Table 7: Electricity costs in Albanian, the Balkans and Eastern Europe Cost for electricity per kWh for industrial use, In USD / kWh Albania 0.102564 0.065293 Serbia & Montenegro 0.116883 Bosnia-Herzegovina 0.078361 Macedonia 0.095076 Croatia 0.08 Slovak Rep. 0.06 Czech Rep. 0.08316 Hungary Source: MIGA, World Bank Enterprise Benchmarking Programme, 2005

The cost of water in Albania for industrial use is the lowest among Balkan and East European countries, as shown in Table 8.

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Table 8: Water costs in Albanian, the Balkans and Eastern Europe Cost for water for industrial use, in USD / m³ Albania 0.189744 0.530994 Serbia & Montenegro 1.793333 Bosnia-Herzegovina 0.494748 Macedonia 3.056027 Croatia 0.78996 Slovak Rep. NA Czech Rep. 0.919958 Hungary Source: MIGA, World Bank Enterprise Benchmarking Programme, 2005

7.2

Human resources

7.2.1

Population and unemployment

Albania has a population of 3.2 million and an official unemployment rate of around 15%, creating a large, available labour pool. Leather and shoe companies report that typically up to 100% of the workforce in the (including unskilled workers) speaks Italian, and likewise there are high numbers of Greek speakers available. The multi-lingual workforce is an advantage for Italian and Greek investors, of for companies seeking to do business in these markets. 7.2.2

Tertiary and vocational education

In 2003-2004 Albania had 53,000 students enrolled in tertiary education, with over 6,000 graduates per annum. The total number of students increased by over 20% in 2003-2004 compared to the previous year and the number of graduates by 15%. As Table 9 shows, over 3,700 students were enrolled in engineering, manufacturing and construction in 2002-2003. Table 9: Students in tertiary education in Albania by field of study Students graduated in tertiary education by fields of study 20022003

Students enrolled in tertiary education by fields of study 2002-2003 Full Time Part Time Education

8165

Humanities and Arts

4185

Social science, Business, Law

6976

Science, Mathematics, Computing

1127

Engineering, Manufacturing, Construction

3738

Agriculture and Veterinary

1140

Health, Welfare

3938

Services Total

6025 7069

281

Total

Full Time

Part Time

Total

14190

1107

792

1899

4185

590

14045

1019

1127

101

101

3738

218

218

1421

279

3938

587

590 257

1276

116

395 587

863

93

956

134

2

136

30132

13468

43600

4035

1167

5202

Source: Edmond to add exact source

29

In addition to tertiary students, some 20,300 vocational pupils were enrolled in 20022003 with around 3,100 students graduating in that year. Nearly 8,500 students are enrolled in vocation engineering, manufacturing and construction courses with nearly 1,300 graduates in 2002-2003. Table 10: Students in vocational education in Albania by field of study Total number of the pupils Number of graduated pupils enrolled in vocational education in vocational education by by group-field 2002-2003 group-field 2002-2003 Education

2019

262

Humanities and Arts

4620

778

Social science, Business, Law

1729

159

Engineering, Manufacturing, Construction

8406

1277

Agriculture and Veterinary

1552

136

Services

2002

460

Source: Edmond to add exact source

7.2.3

Industrial relations

Most shoe and leather investors in Albania have no union and on average there is a 45-hour working week. Labour turnover on average is 8.2 per cent, primarily as a result of female workers leaving employment after getting married.

7.3

Infrastructure and logistics

7.3.1

Logistics

Albania offers investors in leather/shoes excellent proximity to the Italian, Greek and Balkan markets. Indeed, Albania has a location advantage over many of its Balkan neighbours as the country has direct access to the Mediterranean Sea and is very close to the Italian and Greek markets (see Figures 1 and 2 below). Foreign investors in Albania can turnaround orders quicker than any other country, according to investors interviewed. This can include receiving a small batch, specialist order from Italy with only the Italian design, which is then digitised by the Albanian factory, produced then shipped out to Italy all within 24 hours. As one major Italian investors stated: “Delivery time is very important to the client. We have five days maximum turnaround time, and can deliver an order even within 24 hours to Italy.”

30

Figure 1: Map of Albania’s geographic location in Europe

Figure 2: Map of Albania’s geographic position in the Balkans

31

7.3.2

Transportation infrastructure

Transportation of shoes and leather is almost 100% by ship to Italy. Due to proximity to the market, delivery delays are minimal. According to investors, it typically takes 1 day to clear customs in Albania for shipping to Italy. Transportation costs are typically 5-10% of total operating costs. Exports to the EU and North America typically go through Italy and Greece. The main port in Albania is at Durres (see Figure 3). For the transportation of inputs, Albania’s internal physical and public transportation infrastructure is weak. This increases the cost of locally sourced raw materials and inputs, encouraging imports, as well as making worker transportation difficult if not impossible, especially for night shifts.

Figure 3: Port of Durres

7.3.3

Energy infrastructure

Energy reliability in Albania is a major issue. According to a major Italian shoe manufacturer in Albania, “Electricity is one of the biggest problems in Albania”. On average, fieldwork showed there to be on average 68 hours electricity blackouts per month for each investor.

32

7.3.4

ICT infrastructure

The ICT infrastructure meets the needs of the sector. Mobile phone quality is rated highly by investors and Internet infrastructure is adequate.

7.4

Sites

To be added

7.5

Economic performance and stability

The macro-economic conditions for foreign investment in Albania are positive and Albania is out-performing other countries in the region, which will encourage investors to consider investment in Albania. 7.5.1

Economic indicators for Albania

The Albanian economy has recorded sustained economic growth. GDP growth has averaged 6% in 2003 and 2004, and is forecast to accelerate even faster in 2005 and 2006. At the same time, Albania is recording double-digit export growth, inflation below 3%, growing per capita incomes and falling unemployment, as Table 11 shows. This strongly suggests that the overall macro-economic business environment is improving for foreign and domestic investors.

Table 11: Key Domestic Economic Indicators in Albania Population

199 8 3373

199 9 3401

200 0 3418

200 1 3112

200 2 3145

200 3 3190

200 4*

200 5**

200 6**

-

-

-

RGDP % change

12.7

10.1

7.3

7.6

4.7

6.0

6.0

6.5

6.5

GDP/C (EUR)

726

953

1174

1539

1636

1710

2046

-

-

GDP/C (EUR PPP)

2380

2790

3180

3860

4080

4270

4570

-

-

Unemployment %

17.8

18.2

16.8

16.4

15.8

15.0

14.4

14.0

13.5

Consumer prices %

20.9

0.4

0.1

3.1

5.2

2.3

2.9

4.0

3.0

Exports goods % change

32.7

38.8

7.4

22.9

2.8

13.4

23.6

12.0

9.0

Exports services % change

29.3

223.2

94.4

22.7

3.9

3.0

20.1

11.0

12.0

Imports goods % change

18.5

21.3

32.8

27.5

5.8

0.5

7.8

14.0

4.0

Imports services % change

33.6

29.9

200.7

6.4

26.0

13.8

7.2

18.0

6.0

Source: wiiw

7.5.2

Comparative economic performance of Albania

Albania’s economic performance is very favourable when compared to other Balkan and East European countries, with Albania recording the fastest economic growth rates in the region, as Table 12 shows.

33

Table 12: Albania’s Comparative Economic Performance (% GDP growth) 2003

2004*

2005**

2006**

Albania

6.0

6.0

6.5

6.5

Bosnia & Herz.

3.5

6.0

5.0

5.0

Macedonia

3.4

2.0

4.0

4.0

Serbia & Mont.

2.5

8.0

5.0

5.0

Croatia

4.3

3.7

3.5

3.5

Turkey

5.8

8.0

6.0

6.0

Bulgaria

4.3

5.6

5.0

5.0

Romania

4.9

7.8

5.0

5.5

Source: wiiw

*preliminary, **forecast

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8

Investment opportunities and issues

8.1

Strategic framework

As Figure 4 below shows, to successfully attract inward investment there are several pre-conditions: • • • •

Fundamentally, there has to be market opportunities i.e. FDI projects that the location can compete for (marketing opportunities) The location has to be able to meet investor requirements (location attributes) The location had to be able to meet investor requirements better than other locations (competitive environment) An effective sales & marketing strategy is need to promote and facilitate inward investment

Figure 4: Framework for investment promotion strategy

Demand side factors (Market opportunities)

Competitive environment Supply side factors (Location attributes)

Target sectors/ location alignment

Product development

Sales and marketing strategy

Source: OCO Consulting

Successful attraction of inward investment is also supported by targeted of specific sectors or sub-sectors that align with the location attributes and that the location continuously improves its “location product”. In the following sections each of the elements of the “framework for investment promotion” are examined with respect to the shoe and leather sector in Albania.

8.2

Market opportunities

As discussed in Section 2.2, the number of FDI projects in the shoe and leather sector is very low. In fact, with only 4-5 Greenfield FDI projects per annum being recorded in Europe each year, the shoe and leather sector has among lowest number of FDI projects out of all sectors. Albania would need a 20-25% European market share if it were to attract 1 Greenfield project per annum. Attracting a major new Greenfield FDI project within a

35

2-3 year timetable would be a realistic target. This will require identification of investors with the best investment potential and sustained relationship building with these investors over several years so that they consider Albania when they have an investment project. We would emphasize, that the project could be relocation from high cost countries in Eastern Europe or from Italy. At the same time, there is excellent scope for Albania to attract investment projects from existing investors in Albania, and we estimate that 1-2 major expansion projects should be possible to secure in the next 12-24 months. While the size of the opportunity in terms of the number of FDI projects in the leather/shoes sector is limited, the average project size is very large, with many 500+ job factories established. Therefore, the sector continues to offer the potential for significant economic benefits for Albania.

8.3

Location attributes and competitive position

In Section 2.3 we saw that the key location factors determining the investment location of shoe & leather companies are primarily: low labour costs, availability of a suitable skilled workforce, JIT production possibilities, production quality, availability of suitable sites and premises, a reliable energy supply, and transparent, streamlined investment procedures. In relation to these key location factors, Albania meets most of the investment requirements. However, in terms of availability of suitable sites and premises and a reliable energy supply, Albania does not fully meet investor requirements. There is minimal information on sites in Albania and there are no designated industrial or free zones ready for investors to move into. Reliability of energy supply in Albania is the worst in Europe, and investors can only operate in Albania if they supply their own generator, which increases fixed and operating costs. Compared to competitor locations, Albania is very cost competitive, has a good supply of workers and offers excellent accessibility to the biggest textile centre in Europe (Italy). Albania, though, faces strong competition from other countries in the region (in particular Romania which is the leading shoes & leather exporter to Italy) and from North Africa and increasingly China and India. All of these competitor countries offer better site availability and energy reliability than Albania. They also have far larger labour markets. In competing with other locations, Albania should emphasise its cost advantages and the possibilities for high quality, flexible and JIT production systems. Albania’s track record in the sector should be highlighted, as should the availability of labour.

8.4

Target sectors and location alignment

Based on fieldwork and existing research, the following sub-sectors have potential for foreign investment: •

Shoe Uppers: Primarily the expansion of existing investors. Large-scale relocations are likely to go to Asia in future, not to Europe. More specialised production could relocate from Eastern Europe (Hungary, Slovakia) and

36

• •

8.5

Romania, Bulgaria and Croatia as cost levels rise with EU membership. Albania is particularly competitive in the production of safety shoes, where Albania has an excellent track record. Raw and Processed Leather: Imports in this area are growing rapidly and there are opportunities for import substitution investment and exportorientation investment. In 2004, exports from Albania increased by 20%. Niche Products: Exports of leather products such as handbags are growing, albeit from a very small base, and there is potential for further investment in the production of nice products.

Product development

Figure 5 provides a SWOT analysis of the Albanian shoe and leather sector based on interviews with investor and desk research. Investors were unanimous in citing Albania’s low labour costs and strategic location as key location advantages. Almost all investors additionally cited high levels of quality and flexibility as key strengths, as well as the strong tradition of Albania in leather/shoe production. Global competition from China, India and North Africa and regional competition from Romania and Bulgaria were cited as the key threats for the sector. Figure 5: SWOT Analysis of the Leather/Shoes Sector in Albania Strengths

Weaknesses

•

Low labour costs

•

Availability of industrial sites

•

Experienced workforce

•

Energy reliability

•

Proximity to Italy

•

Availability of technical workers

•

Quality levels

•

Very high level of imported inputs

•

Flexibility and JIT productions

•

Quality of travel-to-work transportation

•

Low transportation costs

•

VAT

•

Experience and tradition in the sector

•

Track record in the sector

•

Low staff turnover

•

Growing local market opportunities

reimbursement

issues

and

lack

of

incentives and support for the sector •

Romania and Bulgaria, due to EU accession process, have many advantages

Opportunities

Threats

•

Expansion of existing plants, especially of

•

High dependence on contracts with Italian firms

the leading investors

•

Competition from China, India and North Africa

•

Leveraging emerging critical mass in the sector

to

develop

the

supply-chain

is threatening renewal of contracts •

(especially leather processing) •

Exploiting the economies of scale of large

•

Small scale producers fail to consolidate or

contracts with Italian firms, to develop

adopt

local design, branding and production for

equipment, leading to closure of many factories

direct sales to overseas customers •

Technical/skilled labour shortages limit the upgrading of the whole sector

Increasing levels of process and product

•

latest

production

processes

and

Design, branding and direct sales & marketing doesn’t develop

improvement, eventually with the aim of R&D

Source: Interviews with 8 leading investors in February 2005

37

The SWOT analysis indicates three main areas of product development recommended to ensure the long-term competitiveness of the Albanian shoe and leather sector: •

•

•

8.6

Industrial sites: Lack of availability and information on industrial sites is a critical weakness of the sector. According to one of Albania’s top two shoe exporters: “When a manufacturing company comes to visit Albania, they can see that India and China offer much better availability and quality of sites and factories than Albania”. The unplanned development of the sector has meant that agglomeration economies have been lost, as companies have not located in proximity to each other. The Albanian Government needs to compile and maintain a database of industrial sites and to put in place a programme for site preparation. Coordination is required between municipalities, and standardised profiles of sites across Albania compiled. Successful example from countries like Czech Republic, Turkey and Costa Rica provide valuable best practice lessons. Design and development: All design currently takes place in Italy. There are several examples of process and product development in Albania, but this is firm specific and does not represent the industry as a whole. Cost levels will inevitably rise in Albania, and while Albania is cost competitive now it is unlikely to be so in the future. It is essential that the shoe and leather sector can develop indigenous design capability so that Albania can upgrade to higher margin activities. Almost all shoes exported from Albania carry foreign brands and are produced under long-term contracts with Italian clients. However, several investors recognize the importance of developing their own brands, which will create more possibilities for direct export to a diversified customer base rather than re-export to Italy. Energy reliability: Albania will always be at a competitive disadvantage of energy reliability cannot be at the same level as competitor countries.

Sales & marketing strategy

A one-year marketing plan should be developed for the sector, which will provide a project plan for promotion of the sector, with concrete actions. It is important the sales & marketing strategy is developed in coordination with other stakeholders. For example, ACIT started in Spring-Summer 2005 a mailing campaign to promote joint ventures in the shoe & leather sector between Italian and Albanian companies. Such initiatives need to be coordinated as part of an overall marketing plan for the sector. The marketing plan should include promotion of the sector to both potential new investors and existing investors. The plan should include key activities to be completed during the year (e.g. telemarketing, trade shows, CRM systems, marketing materials, client visits etc) and provide performance targets (e.g. number of company visits, number of site visits, number of active projects, number of realised projects with jobs and investment targets etc). The Albanian shoe and leather industry is dependent on Italy for almost all exports. The USA and Germany are the next major importers of Albania’s key export products, and the marketing plan should consider whether Albania could displace current suppliers to these markets from Hungary, Malta, Slovakia, and Romania etc.

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9

Company target lists

To add based on company lists purchased by EU-UNDP.

39

10 Investment process and key contact points Please see http://www.anih.com.al. Under the tab “business guide” information on how to invest, together with downloadable company registration forms are provided. Under the tab “publications” a comprehensive Investor’s Guide to Albania can be downloaded. For further information, please contact ANIH: Albanian Foreign Investment Promotion Agency – ANIH Address: Blv. "Gjergj Fishta", P. Shallvare, Tirana, Albania Tel: +355 4 252 976 / 252 886 Fax: +355 4 222 341 E-mail: [email protected]

40