Byline: Luisa Zargani

MILAN — Even proud Italy, which built its production prowess in the last half century into the most respected in the world, has been forced to bend to global pressures.
For years, Italians remained fiercely loyal to their tradition of craftsmanship in textiles and apparel, one which goes back to medieval guilds and began to flourish after World War II. But facing the modern economic reality of rising wages and consumer expectations of low prices, this nation’s garment and fabric makers over the past decade have started to move substantial portions of their production out of the country.
In many ways, they’re following the lead of the U.S. apparel industry in moving production to lower-cost areas in the southern region of the country and beyond its borders. However, rather than turning first to the nations of the Far East, Italian apparel makers are looking closer to home, setting up shop in Eastern Europe and Northern Africa.
Italian firms are also continuing to see themselves as manufacturers. In many cases, they’re buying or building their own plants in foreign countries, relying on outside contractors as more of a backup and a safety valve.
The vanguard of this movement is Gruppo Miroglio, a maker of garments and fabric which in the late Seventies began to move production abroad, initially to Tunisia, Egypt and Morocco, years before other Italian companies began this migration.
While the company’s trendier and more strategic lines, such as Caractere, Elena Miro and Motivi are produced in Italy, 50 percent of the its apparel production is done abroad, according to Elisa Miroglio, a member of the family that owns the company who works in the communications department. Lines produced outside Italy include Claudia Gil and Miralba.
The company in recent years has started to set up shop in Eastern Europe as well, Miroglio said. She explained that the company moves carefully in selecting which foreign countries in which to build or buy factories.
“We choose countries with low costs of labor, that are easily reachable, politically stable, and that do not have any limitations of access to the European Community or the U.S.,” said Miroglio.
Still, even with those provisos, moving production outside of Italy is an effective way to cut costs substantially. Miroglio said that at the company’s North African plants, hourly wages average about $1.34, compared with about $11.14 in Italy. (Figures are converted from the Italian lira at Friday’s exchange rate.)
Last year, the company heavily invested in its textile and fabric divisions abroad. In Bulgaria, Miroglio spent about $8.9 million to build a silk-weaving plant outside the city of Sliven. In Tunisia, where the company had set up a weaving plant in the Eighties, it spent about $8.9 million to buy a cotton and synthetic fibers yarn-spinning mill, which had previously operated under the Bacofi name.
“In particular, in Bulgaria, we are setting up a wool division, Miroglio Lana, to enter the medium range of the wool market — a first for us,” said Miroglio.
The company spent about $22.3 million to buy a formerly government-owned woolens mill that had operated under the Slitex name.
“We are banking on good technical training and new machines to compete with the Prato and Biella producers,” said Miroglio.
She added that the company believes that its increased foreign manufacturing presence will help it to better compete in more price-sensitive categories in the country, as well as outside.
“Production abroad does not influence fashion in terms of style,” she said, “but we expect it to increase our penetration in the markets.”
In 1992, GFT Net, part of Italy’s giant Holding di Partecipazioni Industriali, set up a garment-making plant in Svidnik, then part of Czechoslovakia. According to Roberto Jorio Fili, managing director of the operation, which produces in-house lines for HdP as well as contracting for Calvin Klein and Antonio Fusco, the company chose that location — now in the independent nation Slovakia — because the city developed an industrial tradition during its years under Soviet influence.
“We found an existing plant that just needed to be renovated and refreshed, but was perfectly qualified to produce outerwear and formal, tailored looks,” said Jorio Fili. “Also, it was logistically close.”
However, Jorio Fili acknowledged that the company ran into some initial cultural conflicts in bringing the plant up to speed. While the nation had a history of manufacturing under the Communist system, by its nature it did not encourage workers to take the initiative on projects.
“There was a social system there that did not reward individualism,” he said.
Some items for the Calvin Klein and Valentino collections and the company’s Dalton & Forsyte lines are produced in Slovakia, primarily jackets and pants. About 65 percent of GFT Net’s production is done outside of Italy.
Besides its Eastern European operation, the company has a U.S. plant in New Bedford, Mass., and a joint venture in China. Company officials said all high-end garments made at each plant are sold within the respective countries.
In addition, the company uses local contractors in Turkey, Jordan and the Magreb region in North Africa.
“These are convenient places also because they are close” to Europe, said Jorio Fili, who noted that production in the Far East is more complicated because it must be scheduled further in advance. In Italy, GFT Net has two plants, one in San Damiano for women’s wear and one in Bosconero for high-end men’s lines.
However, the company is reducing its overall manufacturing presence in its home country. In August, GFT sold two men’s wear plants to Giorgio Armani. Those plants produce the Le Collezioni lines for the designer.
Fili said the company does not plan to buy or build other plants abroad in the near future, but is instead focused on developing a network of subcontractors.
One advantage to having its foreign factories and contractors near Italy is that the company can keep a closer eye on production details and quality, he added.
“You must be in control of design and have Italian technicians and craftsmen live in foreign production centers to completely mirror the Italian headquarters,” Fili said.
Miroglio said her company takes a similar approach.
“We believe in training our personnel, often young students, directly in our plants, working side-by-side with our Italian specialists,” she said.
Last year, the company brought 40 Bulgarians to Italy for training. Now they run Miroglio’s new dyeing and printing plant in that nation.
Consultant Armando Branchini, vice president of the firm Intercorporate, agreed that keeping a close eye on foreign production is key for Italian makers.
“It is essential to have tight control over the whole chain, from design to production, retailing and communication, to ensure quality requirements, deliveries and correct assortment,” he said. “Brand control today is more important than production in Italy.”
However, Branchini pointed out another reason to keep production closer to home: the economic advantages of producing in Asia today are not that great for European countries. The reason for that is the typical practice of transacting business between Europe and Asia in U.S. dollars, rather than in local currencies.
“Since the exchange rate with the dollar is not favorable to the lira or the euro, Italian companies have experienced a 30 percent increase of costs in the past few years,” he said.
Branchini said Africa, Eastern Europe and the south of Italy are gaining importance as manufacturing areas as a result of the weakness of European currencies.
High rates of unemployment in southern Italy, a result of the traditionally agricultural region’s slow development of industry, has lead the government to encourage investment in the area.
In 1997, Miroglio built two spinning and weaving plants in the Puglia region of southern Italy.
At that time, Franco Miroglio, then managing director of the company, whose headquarters are located in the wealthy Piedmont region in the north, explained the project as a bid to slash labor costs and to stand up to competition in Southeast Asia.
“Investing in southern Italy would be a smart move for Italian industrialists with small and medium-sized businesses,” he said, “which are facing increasing competition from developing countries.”
The company has continued to invest in the south, in May completing a $6.7 million expansion of a plant in Taranto, in the Puglia region.
Similarly, over the next couple of years, Benetton Group plans to set up a plant in Caserta, close to Naples, to spin and weave cotton.
State fiscal aids today make the average cost of labor in the south about 20 percent lower than in the north, according to Michele De Simone, owner of ICA. That company, which produces women’s and men’s wear for designers and fashion houses such as Nicole Farhi, Donna Karan, Versace, Vestimenta, Verri and Joop, does the bulk of its production in the south.
“It’s much simpler to control production in the south,” compared with foreign factories, said Carlo Pambianco, owner of a luxury goods consulting firm here.
However, Pambianco said the trend to produce abroad will not slow down, especially for low-priced garments, because of the ever-increasing cost of labor in Italy.
Fili said, “Production abroad is in relation to the cost of labor. In the better, bridge and lower diffusion sectors, demand is elastic and changes according to the price.”
He noted that the price variable is particularly important in the U.S.
Silvano Storer, chief executive officer at Marzotto, said earlier this year that his company is entering the second phase of its restructuring strategy, with a focus on moving its textile operations outside Italy. In 2000, the company bought production facilities in Lithuania, which add to Marzotto’s plants in Germany, Switzerland, Tunisia, Turkey, the U.S. and the Czech Republic.
Storer said in 2001 the company expects to see benefits from its strategy that focuses on increasing production outside Italy to cut production costs.
Jean De Jaegher, deputy chairman of Marzotto, suggested earlier this year that that the Italian apparel industry in general needs to move more quickly to establish lower-cost manufacturing operations, if it is to keep up with U.S. competitors.
“We have to catch up,” he said. “Americans are masters at this. They started 20 years ago, and never lost control of the situation.”
Still, some Italian executives believe that domestic production will continue to holds a place in the high end of the market for years to come. Storer pointed out that Marzotto will still produce men’s most formal and exclusive products in Italy, he said.
“They will be more expensive,” he added. “and will be aimed at a very small niche of people who want this kind of specific product.”