THE HUNGARIAN KNITTING INDUSTRY: AN OVERVIEW

By Károly Lázár

Lecture to be presented to the 40^th annual congress of the

International Federation of Knitting Technologists, Budapest, October 18, 2000

 

 

Structure

The origins of the Hungarian Knitting industry, as regards the setting up of factories, dates back to the latter years of the 19^th century. Up till that time the needs of Hungarian knitwear consumers had been met entirely by imports. The first true knitting factory was established in the city of Vác in 1885. It’s successor under the name Senior Rt still exists today.

A knitting mill established by Joseph Cocron in Hódmezõvásárhely in 1889 purchased two wooden hand frames of the type invented by William Lee. One of these can now be seen in the Museum of the Textile and Clothing Industry in Budapest. A big acceleration in the pace of knitting mills being founded took place from 1910 into the 1920’s. Some of these became well known for their exports (e.g. Silks and Woollens Factory Ltd which exported its products to England, the Netherlands and Scandinavian countries, and even to the USA and Canada. Mills that were established following this period were essentially successors of those established in the early decades of the 20^th century.

During World War II Hungarian industry, and with it the emerging knitting industry, sustained massive damage. Every mill suffered in some way with several being either partly or completely destroyed. In total the country lost roughly one quarter of its textile industry capacity.

Reconstruction began immediately after the war. Then, following nationalisation in 1948-1949 the small and medium-sized companies were either dissolved or incorporated into large specialised enterprises established to make certain groups of products. Following many re-organisation initiatives by the end of the 1980’s there were ten large state-owned knitting factories officially belonging to the knitting sector of the textile industry. In addition, however there were some companies in the cotton, wool, hemp and even haberdashery industries that operated knitting plants.

Thus it could be said that there were some 20 volume production knitting enterprises working at that time. Certain of them operated more than one plant. This would be about 60 plants within the state-owned factory system. Altogether however one could count about 70-75 mills within the state system - an industry which also took in knitting factories established by co-operatives and local authorities. These also usually had more than one mill. At the same time one should not neglect the number of private entrepreneurial enterprises with just one or a small number of machines.

Traditionally knitting factories incorporated garment manufacturing utilising the firm’s knitted fabrics. Larger companies maintained their headquarters knitting plant with sewing departments in outlying villages or small towns. Only a few companies had their own dyehouses but they did carry out commission work for other companies.

Political and economic changes in Hungary at the end of the 80’s and the beginning of the 90’s resulted in serious consequences for the whole textile and clothing industry - and, of course for the knitting industry as well. The huge state-owned companies were unable to adapt themselves to the new economic environment. Many of them had invested heavily in technical development in the early 1980’s but were still unable to sustain the impact of the changed world and became bankrupt. Most of them found themselves producing quite uneconomically and had to go into liquidation. The rest contracted and became much weaker. However out of the ashes many smaller private ventures came into being. These newly established smaller companies, if things went well, could be run by the new owners in a much more rational way and many of them were able to change their outdated old machines to more up-to-date second-hand units or even to brand new ones. However, as happens from time to time the change of ownership does not invariably result in success and the privatised company collapses. If everything turns out well during the liquidation process a new owner can take over the venture and may turn the situation to good account. The worse scenario is when the company collapses completely. There are examples of all these situations.

Following political and economic changes output of the textile and clothing industries contracted a great deal. The worst period was 1992 when the production of textiles was only 40.4 per cent of that in 1985. The figure relating the knitting was 34.6 per cent. The clothing industry represented 61.7 per cent in this aspect. Since that time the overall figures have improved: production of the textile industry is 107.4 per cent of that in 1992 and production of the clothing industry is more than 50 per cent above the 1992 level. The knitting industry employed nearly 19 thousand people in 1990, today employment is only 8300 to 8500 persons.

Privatisation of the knitting industry is now more or less complete. State ownership represents barely 4 per cent and most companies are privately owned by Hungarian nationals (see Chart I). There are no longer any knitting factories in complete state ownership. The state, albeit represented in some cases by banks, now plays very little part. In some larger companies privatised banks or banks in business before privatisation have a stakeholding. The smaller factories are in most cases privately owned. There are also a considerable number of joint ventures established with overseas investors. Overseas capital now accounts for more than a third of the total invested in the Hungarian knitting industry.

 

Chart I

Ownership

Source: Central Statistical Office, Ministry of Economics

 

Investors - mainly German, Austrian and American - have significantly updated the plants, introduced working practices, organisations that have improved the productivity and, utilising their existing contacts in the market, proved export potential for their Hungarian companies.

As well as business associations many private entrepreneurs deal with making textiles or clothing in some way. This affects knitwear production, too. Figures relating the end of 1998 are shown in Chart II. Most of the ventures working in the textile and clothing industry employ only relatively few people as shown in Chart III.

 

Chart II

Company types in 1998

Source: Central Statistical Office

 

Chart III

Number of ventures by their size in 1997

Source: Central Statistical Office

 

Knitwear production

 

Among the sectors making various types of textiles and clothing the knitwear industry presented 5.4 per cent in 1999 (Chart IV).

 

Chart IV

Proportion of different textiles and clothing (1999)

Source: Ministry of Economics

 

Production data for the most important groups of knitwear are shown in Chart V, the value of production and sales is indicated in Chart VI. As can be seen, 55 to 60 per cent of products are sold abroad.

Chart V

Production data of the knitting industry

Source: Central Statistical Office

 

Chart VI

Production and sale of knitted fabrics and ready-made garments (at current prices, million US $)

Source: Central Statistical Office

 

Most of the companies remain small. This means that most annual sales are also relatively small: almost 55 per cent of companies have less than half a million US $ income and only 15.4 per cent have income in excess of 23 million US $ (See Chart VII).

 

Chart VII

Representation of ventures by their income in 1998

Source: Central Statistical Office

 

 

Market position

 

Nearly 60 per cent of Hungarian-made knitwear is destined for export. A significant part of this is represented by goods made in Hungary for large chains of international department stores. Through them the goods are then exported. Chart VIII shows the most important export and import data. As indicated both exports and imports increased in 1998 compared with the previous year covering almost each product category except babywear. The quantity of imports of fabrics, sportswear, legwear and knitted accessories exceeded exports. For the rest of the products exports exceeded imports.

Target countries for exports are first of all the members of the European Union (mainly Austria, Belgium, France, Germany, Italy, the Netherlands, Switzerland). Imports come from the same countries and from Belarus, China, the Czech Republic, India, Indonesia, Slovakia, Thailand, Turkey and the United Kingdom.

 

Chart VIII

Overseas knitwear trade

Source: export-import statistics

 

Domestic sales of garments, according to official statistics, tend to fall, representing about 6 per cent of consumption. However the knitting industry also has to compete with the black market. Knitwear is in many cases a group of articles of prime necessity (underwear, tights and socks, baby and children’s wear, etc.) the consumption of which (measured by quantity) probably does not diminish even if official statistics state so. No doubt, many people buy these articles through channels which cannot be registered by the Central Statistical Office. Some estimates say that the black market concerning garments represents one third of turnover and this figure relating underwear is 37 per cent and for outerwear is 30 per cent. I am convinced that consumption, measured in quantity, does not diminish but many customers neglect official retailers, whose prices are relatively too high.

A considerable part, 35 to 40 per cent of knitwear exports comes from commission work, however this is much less than in the clothing industry where its ratio is over 90 per cent. The knitting industry has a special position in this sense since many of them have both fabric making and sewing plant and sell ready-made garments. Hence, the tendencies that characterise, on the one hand, the textile industry (at least that part which produces fabrics) and, on the other hand, the clothing industry which is confined to cutting and sewing, are mixed in with the knitting industry, creating both opportunities and problems. The knitting industry has the good fortune to have its own fabric making capacity while the clothing industry processes mainly woven fabrics - the majority of which have to be imported.

The fact that the knitting industry is able to undertake commission work is a consequence of the relatively low level of wages. Wages are seven or eight times higher in Western Europe than in Hungary. However, additional labour costs and overhead costs are relatively high compared with other Eastern European countries. For this reason Hungarian knitting companies tend to establish subsidiary company in Slovakia, Romania or Ukraine or to enter into contracts to have commission work made there. This tendency may continue.

 

Material Supply

 

Yarns to be used in the Hungarian knitting plants are supplied partly by domestic spinning mills and partly imported. Total yarn production in Hungary was 20.4 thousand tons in 1998. Yarns coming in within the framework of the outward processing trade represents a considerable quantity and go back to the customer in the form of ready-made garments.

Wool production was never enough in Hungary for domestic made textiles and it has even declined over this period. The production of woollen and wool type yarns amounted 24.7 thousand tons in 1985. This fell to 5.2 tons in 1995 and is about on this level today too, consisting mainly of blends. It seems now that some development can again be seen in the wool spinning industry.

Cotton and cotton type yarns used by the knitting industry are in great part of domestic origin. However, production diminished in the last decade too. It was still 64.6 thousand tons in 1985 and only 20.6 thousand tons in 1995. In 1998 14.1 thousand tons of 100 per cent cotton yarns were registered. The quantity of blended yarns can be estimated at 4 to 5 thousand tons.

Man-made fibres and filament yarns for knitwear (polyamide 6 filament and acrylics) are made in Hungary by Zoltek Rt, an American-owned company. Besides, we have considerable yarn texturising capacity for making polyamide and polyester textured yarns. The total domestic production of synthetic spun and textured yarns in 1998 was 9.900 tons, the total production of pure synthetic and blended yarns with synthetic components cam to 18.000 tons in 1998. The annual capacity of Zoltek Rt in acrylics is 16 to 18 thousand tons, depending to the product range, in polyamide 6 filaments 3,000 tons. This company is, on the other hand, one of the largest carbon fibre producers of the world.

Data of imports of the most important groups of fibres and yarns are listed in Chart IX.

 

Chart IX

Imports of fibres and yarns (in tons)

Source: import statistics

 

As usual in the European textile industry, imports of yarn have moved from Western Europe to Turkey, Far East, India, Pakistan and South America. However in many cases the yarns pass through Western European trading houses. Liberalisation of yarn imports means great competition to domestic spinners. Import duties relating to countries outside the European Union, play an influential role when making decisions as to sources of supply.

 

Technical Level

 

Textile machine production in Hungary is very limited. Steaming tables and ironing presses are the only machines where the traditions of previous decades could be maintained: privatised companies continue these activities of the former state-owned enterprises and a successful private venture has been established for this purpose, too. However, there is considerable production of component parts for various textile and sewing machines which are used first of all by smaller firms.

In the beginning, the majority of the newly established knitting companies acquired machines from failed state-owned factories and second-hand machines from abroad. These used machines are, however, usually more up-to-date units than the old ones bought from the state-owned companies. They are thus able to approach that technical level that is essential when making up-to-date knitted structures. Fortunately, we can also see many examples of entrepreneurs with sufficient capital who are able to buy state-of-the-art machines. Thanks to this many small and medium size knitting companies are now able to sell products in the higher price categories.

Main products of the Hungarian knitting industry are outerwear made on V-bed flat machines, Cotton type machines and circular knitting machines. They comprise circular knitted underwear, knitted gloves, socks, stockings and tights, as well as laces and curtains. Unfortunately the former very important tricot machine capacity has contracted considerably.

Investments in the Hungarian textile industry amounted US$ 30.5 million with the knitting industry representing 1.5 million and the clothing industry 10.9 million. As regards investments, 1997 and 1998 were outstanding years, when total textile industry investment came to US $ 33.5 and 31.8 million respectively. These were the years when many new plants were established in this country mainly by foreign investors.

One of the most serious problems facing the Hungarian knitting industry is the level of dyeing and finishing capacity. The main reason for this is the high expense level for machines and equipment plus the high cost of additional requirements (e.g. those that are imperative for the protection of the environment). Together these hinder the development of this technology. However, some progress can be observed on this field, too. Investment made by both Hungarian and foreign investors are extremely important because the low level of dyeing and finishing capacity forms the most serious obstacle to knitwear production of a good quality level. Good colour fastness, low shrinkage, an attractive appearance of fabrics can be attained only in dyehouses equipped with up-to-date machines working with strict operating and technological disciplines and organised with true professional skill. Only relatively large plants can meet all these requirements and only a small proportion of these can afford to invest in new machines and equipment.

Quality management system based on the ISO 9000 series of standards as well as qualification according to Eco-Tex Standard 100 are well known in Hungary, with more and more textile companies using them. This is a good thing because without any competitiveness in this market cannot be maintained otherwise.

 

Labour Force

 

The Hungarian knitting industry employes about 8,000 people, roughly one third that of ten years ago. Experts who left the collapsed large enterprises made themselves independent and established their own knitting mills - sometimes taking the best workers from their former company with them. Another group of textile specialists finally left this industry. A fresh intake of experienced technical and other specialist personnel is limited because of low wage levels.

According to the Central Statistical Office, the average gross salary in the knitting industry was US $ 193 a month in 1998, blue collar workers earning US $ 174, while white-collar workers made US $ 371. Unfortunately, wages in the knitting industry are near the lowest level in Hungarian industry. This is why even unemployed workers are not enthusiastic about seeking employment in these factories.

Raw material costs in the knitting industry are about double labour costs. The ratio of labour costs within total expenditure are relatively high in the knitting industry, compared with industry in general. The reason for this is the relative high labour intensity of this work, mainly because of the sewing operations.

The level of education in Hungary is traditionally recognised as being high. Textile studies can be pursued in technical secondary schools, at the Technical College of Budapest and at the Technical University of Budapest. Textile designers and stylists learn their skills at the Hungarian Academy of Applied Arts. High level research work is carried out at higher education institutes. Automatic, computer controlled machines are spreading also in this country but to operate them needs skill and technological knowledge. Education must keep step with this development. Beside educational institutions, however, also civil organisations such as the Hungarian Association of Textile Technology and Science offer seminars and courses for textile and clothing industry employees where they can become familiar with the latest developments of their scope of interest.

Learning foreign languages plays important role in education since effective communication with overseas partners can be carried on only in this way. Not less important is to learn information technology since the use of computers and traffic on the Information Highway is essential nowadays.

 

* * *

 

Hungary seeks to become a member of the European Union which means a very considerable challenge for the knitting industry among others.

Establishment of a macro-economical environment, harmonising of Hungarian law with that of the European Union, determination of the additional labour costs (health insurance, taxes, etc.) - are among major Government concerns. Knitting entrepreneurs can at most assert their wishes and can try to influence the high level decisions through their business federations. However many things are up to the companies themselves, as to what steps they take to improve the quality of the labour force and for successful innovation.

The demands made by the anticipated joining to the European Union are usually well known by entrepreneurs in the knitting industry. Through knitwear exports and commission work they have already created good contacts with West European businessmen. However in order to be able to accommodate more readily the even stricter and stricter requirements a good deal remains to be done. The Hungarian Association of Textile Technology and Science, the Association of Hungarian Light Industry, the Chambers of Commerce and Trade and many other organisations are using every effort to help them and to prepare them to the changes with information, publications, various courses and seminars. I am convinced also that many of the lectures to be presented on this Congress as well as conversations during coffee breaks, lunches and factory visits will help them reach this goal.