Shoe manufacturers in the Czech Republic, which became one of the ten new members countries of the European Union last May, are making preparations to take a legal action against the Czech government because, according to them, it has been excessively lenient in letting in cheap footwear from China and Southeast Asia, which has been imported in some cases fraudulently after the fall of communism in 1989.
Officials of the Czech Footwear Association officials blame the Chinese competition for the dramatic decline of their production numbers. Since the Velvet Revolution, the association reports, the output of Czech manufacturers has decreased tenfold, plunging down from 73 million pairs in 1989 to 6.5 million pairs in 2003. In the past decade, Chinese footwear imports increased nine times, rising from 3.5 million pairs in 1993 to 31.8 million last year. The accession of the country to the EU curbed somewhat the influx since last May, but it’s expected to resume strongly after next Jan. 1, when the EU’s import quotas on Chinese footwear are going to be lifted.
Petr Kubat, president of the Czech Footwear Association, says large stocks of cheap Chinese footwear, textile products and electronics were amassed in the Czech Republic before the enlargement, ready to move westward and swamp the more developed countries of the EU after Jan. 1. The same has reportedly taken place in Poland and some other new EU member countries.
Czech manufacturers blame state authorities for failing to set minimum import prices to curtail footwear imports which, according to the association’s officials, have been brought in at dumping prices. The average import price for Chinese footwear as low was as €1.65 per pair in 2003, based on the official statistics. Comparatively, one pair exported from the Czech Republic in the same year cost €9.60 on average. While the volume of inexpensive Chinese imports accounted for 72 percent of all the pairage imported last year, its value amounted to a mere 28 percent of all footwear imports.
According to the Czech Footwear Association, the govenment could have protected the interests of the country’s shoe manufacturers by introducing import quotas similar to those that were applied in Slovakia over a number of years, until the country entered the EU in May. Kubat says nobody in the Czech government seems to be planning to take any steps. They seem to be more intent on preserving the cheap shopping opportunities offered to low-income citizens in the numerous open-air markets that continue to thrive throughout the country.
According to the association’s estimates, approximately one-quarter of all the footwear sold in the Czech Republic originates in the country’s 12,000 market-type stands, mostly ran by Vietnamese vendors, which carry both footwear and apparel. A similar amount is sold in supermarkets, the association’s officials estimate. Unlike the supermarkets, the vendors in the open-air bazaars trend to break the law as they do not issue receipts and deny customers warranties on the products, which are required by law.
Nevertheless, industry insiders indicate that the influx of cheap Chinese imports has not been the only cause of the downfall of the Czech shoe manufacturing industry. They say that producers were unable to react to the new market conditions that emerged after the fall of communism. Several firms were undercapitalized and went bankrupt.
Many thought that Bata’s comeback to the former Czechoslovakia would salvage the country’s production, says Emil Hegr, managing director of Growela, a company that produces the Swiss Corami line, but things then took a different turn. Tomas Bata, a gifted Czech entrepreneur, opened his first shoe-making workshop 110 years ago in Zlin, a Moravian town located 300 kilometers east of Prague. The company grew dramatically after World War I as Bata implemented American-style serial assembly processes that he learned firsthand as a worker at Ford’s automotive factory in Chicago. In 1938, Bata employed 65,064 people worldwide, two-thirds of them in Czechoslovakia. After World War II, Bata’s local operations were nationalized by the communist regime and renamed as Svit. Bata’s son, Tomas Bata junior, moved the company’s headquarters to Canada where he founded today’s Bata Shoe Company.
Svit became a giant centrally-planned conglomerate, but it was not privatized completely after the fall of communism. Instead, it was split into a number of small companies, taken over for the most part by former Svit executives, that mushroomed in the town and elsewhere in the country. Bata bought one former Svit plant in Dolni Nemci that now employs 380 workers and produces 550,000 pairs a year.
In the late 1990s, Czech manufacturers were depending too much on contracts from foreign companies, and they were caught off guard by Chinese competitors. For example Benal, a traditional producer of sports footwear whose Botas brand was a local synonym for sneakers during communism, still manufactured for Puma, Salomon and Jofa in the 1990s, but by the year 2000 those clients had shifted their production to China. Now, the company’s production dwindles at 280,000 pairs a year. After the fall of communism, most Czech producers were unable to transform their business by hiring designers and marketing their own local brands.
Other companies have experienced problems because they did not diversify their clientele, focusing on exports to unstable former Soviet markets. In the mid-1990s, one of the largest Czech producers, Svital, exported hundreds of thousands of pairs to Russia, but according to the company’s executive board chairman, Jiri Frkal, the devaluation of the ruble in 1998 almost put the company under. Government authorities are still trying to recover the still outstanding claims of Svital and many other Czech companies in Russia. Svital sold its manufacturing division to an Italian-based company, Albex, after the loss of the Russian market. Since then, Svital has been concentrating on its retail chain, named Stival.
Some Czech manufacturers hope to survive by cooperating very closely with strong European retail chains such as Bata or Humanic, or by making limited runs of special models for global brands such as Rieker and Gabor. One such producer is Growela, whose annual production of 350,000 pairs goes to its Swiss client, Corami, with constant technical supervision on the latter’s part. The company focuses on small series and on the use of Sympatex membranes. On the other hand, some foreign companies that are still outsourcing their production in the Czech Republic, such as Romika, don’t think that this will last much longer.
Meanwhile, Czech authorities have intensified the inspection for counterfeited goods this year, as they begin to comply with new EU regulations on intellectual property protection. Footwear represents about 4 percent of all the fakes uncovered so far this year. Most of the goods have been seized in open-air bazaars near the Austrian and German borders.