Assessing Competitiveness In Moldova's Economy - Economic Growth

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Development Alternatives, Inc. Moldova Competitiveness Assessment: The Textiles & Apparel Cluster Source: Mattila, ibid. Figure 14: Cost per standard minute in the apparel industry Moldova’s second advantage derives from the persistence of excess capacity, and the lack of alternative employment opportunities that allow for quick responses to incoming orders. Laid-off workers can be recalled on short notice to fulfill a particular order. Third, Moldova’s geographic location between East and West confers a potential advantage of speed to market. As its neighbors to the west are becoming integrated into the European Union, buyers there are looking further east, but are still seeking to retain geographic proximity. The potential speed to market may in fact favor Moldova when quotas are phased out completely by January 1, 2005. Cluster Composition Some 50 enterprises are active in the apparel and textiles sector, 18 large and medium-sized, typically joint-stock enterprises, and the remainder small, privately-owned enterprises. Most of the factories are located in the northern and central parts of the country, particularly in the larger cities—Chisinau, Soroca, Balti, or Cahul. According to official statistics, the sector employed some 16,000 workers in 2001, with about half each in textiles and apparel. The three largest firms in apparel employed over half of the total (4,225) for that group. However, the term employment is a little misleading, since the total is not corrected for time actually worked. Plants tend to operate in response to orders received, and close down for stretches at a time when the order flow is disrupted. As a result July 2004 • DRAFT Page 4
Development Alternatives, Inc. Moldova Competitiveness Assessment: The Textiles & Apparel Cluster of just counting workers, no matter how much they worked, estimates of the level of annual sales per worker cannot be compared to other countries. The cost per standard minute shown in Figure 14 suggests that Moldova’s value added per unit of labor (time worked) compares reasonably well with that for competitors. Value added in the apparel industry is almost exclusively labor, since the majority of firms is limited to the cut and sew stage of apparel manufacturing, as illustrated in Figure 15, which depicts the standard upgrading path. For processing services to the EU, Moldovan apparel manufacturers take advantage of the EU’s Outward Processing Traffic (OPT) arrangement. OPT includes the duty-free importation of all materials and inputs, and the imposition of duty only on the value-added portion upon re-export to the EU. Figure 15: Stages of development in apparel manufacturing Source: USITC (United States International Trade Commission) There is no Moldovan manufacturer engaging in Cut, make and source trim (CMT), because there are no suppliers of accessories like sewing thread or buttons in Moldova. However, some manufacturers have taken steps to add value by moving to private-label production: the manufacturer designs collections jointly with the EU customer (or the buyer chooses among proposed collections) and the manufacturer delivers the products under the customer’s trademark. Even in these cases, however, all inputs are sourced in the EU, typically by the joint venture partner. Firm Structure and Rivalry Degree of Competition and Cooperation Given the prevailing operating mode in the apparel industry, there is little competition among the major players; nor is there much cooperation in addressing common problems and issues. The cluster participants active in markets for carpets and home fabrics appear to be working largely independently. There is some limited competition in the market for raw materials (wool), but it appears to be more on an ad hoc basis. July 2004 • DRAFT Page 5
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