Long regarded by some Italian companies as a great place to get shoe uppers stitched quickly and cheaply, Albania is graduating into an alternative source of more finished shoes. Given the stable political situation in the country after 1997 and the average annual economic growth of 6 percent in the recent years, big Italian contractors from the across the Adriatic Sea such as Adelchi, Cofra and Filanto have been sending over sophisticated equipment in the last few years to carry out other stages of the production process – from leather cutting to the assembly of complete shoes. Several local contractors have done the same on their own, and in many cases they have become more independent from their Italian clients, seeking new ones and ultimately targeting the development of their own collections.

This evolutionary process is getting a boost through the implementation last July of a bilateral agreement with the European Union that allows Albanian manufacturers of textile and footwear products to import materials and components without paying any duty, even if the goods made out of them are not re-exported to EU countries. This will make it easier for local shoemakers to buy the raw materials in Italy or elsewhere and to ship the finished products directly to the customers, without intermediaries.

Going in tandem with a gradual elimination of a 10 percent duty on finished shoes from any sources, including China, which has created more competition in the local market, the elimination of import duties on raw materials and components should also drive Albanian footwear producers to take on a more important role not only in the more developed markets of Europe, but also in nearby Serbia and in other countries throughout the Balkan peninsula, linked to Albania by a free trade agreement. Filanto, which owns two factories in Albania, set up a sales office in Tirana two years ago to sell shoes in southern Balkan markets.

With a total population of about 55 million people, these markets represent a major opportunity for Albania. Until now, Italy, Greece and Germany have been by far the largest trading partners of this country for all kinds of merchandise. The footwear sector has represented 30 percent of Albania’s total exports to the EU, and Italy has been importing more than 90 percent of the nation’s footwear products – frequently to re-export them with a “made in Italy” label stamped on them while assembling the uppers made in Albania.

On the other hand, Albania has been getting more attention lately as a low-cost source for uppers or complete shoes because of the escalating cost of labor in Romania, which has just joined the EU, and the large amount of Italian know-how poured into the country’s footwear industry over the past 20 years. While they have risen by about 30 percent in the last five years or so, labor rates are still very reasonable in Albania, which remains one of the poorest countries in Southeastern Europe. They are five times lower than in Greece. At a shoe factory in the capital city of Tirana, workers’ wages vary from the equivalent of €100 to €300 per month, depending on the category, but rates are cheaper in other parts of the country, where there is more unemployment and less competition from other sectors.

Golden Shoes, a factory in the former Albanian capital of Kruja, pays its 400 workers the equivalent of only €160 a month in cash, up from €80 in 1997 and €110 in 2000. The factory’s 15 head technicians take home €500 a month. To ensure maximum productivity, they get an extra bonus of €20 at the end of the month if they reach certain production levels, or else they may be assessed penalties. The far-off location of this factory, which is implementing ISO 900 standards, makes the recruitment of the workers easier than in Tirana.

A newly installed shoe entrepreneur in Vlore, a southern port city located near a future Free Trade Zone of Albania, pays his workers €160-220 a month and has no problems in finding them in his area. He says it is easier to find cheap labor there than in a rural area like Fier, where many women stop working after marriage to take care of their children. On the other hand Picari, a large contractor in Fier, pays only about €110-120 a month – a far cry from the monthly salary of about €400 being requested by workers in Romania, or €200 in certain factories in Tirana.

An estimated 30,000 Albanians are employed in the shoe industry. That doesn’t include some 3,000 people who work in their homes, hand-stitching sandals, moccasins and other types of shoes for the equivalent of about 40-70 cents of a euro per pair. Local entrepreneurs complain that the government doesn’t have a training program for the footwear sector, unlike the textile sector, but they praise the fact that the trainee’s wages are exempt from social charges for six months.

Like the level of productivity, workers’ absenteeism remains a problem in Albania, but local employers have ways to get around that. Albaco Shoes in Tirana pays its 950 employees between 17,000 (€139) and 30,000 lek (€246) per month, and adds a bonus of at least 1,000 lek (€8.19) per month if the worker shows up every day. Owned like Cofra by the Cortellino family in Italy, 15-year-old Albaco recently moved to three shifts per day following the installation of the first PU injection machines to complete the manufacture of shoes for Cofra, using uppers stitched at its own premises and at other Albanian factories, including that of Golden Shoes. ISO-certified since 2002 and licensed by Gore-Tex, Albaco now makes about 3 million pairs of uppers and 3.5 million pairs of finished shoes annually.

While making more than 4,000 pairs of uppers a day as a subcontractor for big Italian companies such as Adelchi and Odeon, the 36-year-old owner of Golden Shoes, Arben Kupi, invested some of his own profits lately in new computer-aided cutting machinery and other equipment that will eventually allow him to make complete shoes as well. He is proposing to form a joint venture or another type of long-term partnership with an established footwear brand or a retailer that would allow him to offer a line of women’s shoes, taking on minimum orders of as little as ten pairs per style and per size.

Like some other entrepreneurs in the Albanian shoe industry, Kupi started off as a truck driver, transporting materials and components to Albania for offshore processing from some Italian shoe companies in the area of Barletta, a harbor that lies only 75 kilometers away from the Albanian port of Durres. Many other companies take goods back and forth through an overnight ferry, in some cases reaching out as far away as the region of Verona in Northern Italy, where most shoe manufacturers are now making only the prototypes and cementing the finished shoes. Most Albanians speak Italian because they have been watching Italian television, even during the ominous days of segregation under the fierce dictatorship of Enver Hoxha.

Kupi has made his capital investments on his own in order to be free to make his own decisions. Other contractors, such as G.r.e.n. Shoe in Shkodër (Scutari in Italian), prefer instead to continue to work exclusively for certain Italian firms, partly because they use their machinery or share their ownership. Run by Fehmi Golemi, an experienced shoeman who worked in Romania and Poland before managing a former Albanian state-owned shoe factory across the street, G.r.e.n. Shoe is one of three contractors in the country who work exclusively for Adelchi.

Adelchi was the first Italian shoe company to have used Albanian labor to stitch uppers, starting around 1989-90, after the fall of Communism and the end of a regime that had closed the borders to all imported products (see subsequent story). Labor was even cheaper at that time, with wages of only about $30 a month. Until then the Albanian shoe industry, like all other industrial sectors, had only been working for the tiny national market, manufacturing very basic products. Only some cheap Czech shoes could be imported into the country at the time.

Housed in a former cigarette plant, G.r.e.n. Shoe is a 50-50 joint venture with Adelchi, and its capacity is being expanded to re-group stitching operations that were previously conducted elsewhere. It recently added the leather cutting stage and it employs sophisticated just-in-time logistics. Using also another factory nearby, the company is now budgeting a total output of 2.4 million pairs for next year, compared with 1.5 million pairs in 2006. While the company was only making uppers in the past, half of the production will consist of pre-mounted or sole-stitched shoes.

Golemi will have to recruit 300 more workers and add another shift to make the transition, but that should not be a problem. Like some other factories in the area, G.r.e.n. Shoe employs mainly women because many of them have husbands who have emigrated abroad. G.r.e.n. Shoe has already produced 70,000 pairs of finished shoes and the goal now is to make them also for specific clients, without going through Adelchi, after buying the raw materials duty-free.

Another entrepreneur in Shkodër, Paulin Radovani, previously had a couple of joint ventures with Adelchi, too, making only uppers at the start, but in 2004 he bought out Adelchi’s share in his present company, Berttoni, after a series of vicissitudes, including the destruction in 1996 of Adelchi’s former factory because of local riots. Radovani’s present factory in Shkodër is now working almost exclusively for Filanto, and about 3,500 out of the 4,500 pairs coming out of it daily are finished shoes. The others are just uppers that are subsequently assembled by Filanto at its two company-owned plants in Albania or in Italy. The clients include big names such as Clarks or Skechers. Sensing that winds are changing, however, Radovani uses part of his large premises in Shkodër for other activities such as the manufacture of Venetian masks and of antibiotics.

To cope with peak requirements in the shoe manufacturing process, Radovani used in the past subcontractors just behind the Albanian border in Kosovo and Montenegro, but this is changing now. About 150 workers are now doing the extra work for him at Puka, a little town in the Albanian interior where unemployment is high and no other shoemaker has ventured so far. The availability of cheap labor is large in this area, which is difficult to access. Working on three lines, two of which are exclusively reserved for Filanto, they are also making some hand-stitched sandals, boots and other types of shoes, working now also for external clients including three companies in Northern Italy and one in Finland. The maximum capacity is 800-1,000 pairs per day. The project began early last year and was supported by a grant from the World Bank, which allowed Radovani and his family to train an initial nucleus of 50 women in the area for this purpose. They get less money than their colleagues in other more developed parts of Albania, but the initiative led Radovani to earn an award for the development of a new industrial sector in the Western Balkans.

The biggest player in the Albanian footwear industry is Donianna, a large group based in the Tirana area that employs some 1,700 people to make around 10,000 pairs daily. They are all made for Adelchi, which turned to it in 1998, after the destruction of the former factory run by Rodovani in Shkodër. Led by a very energetic woman, Donika Mici, who got a different international prize for entrepreneurship in 1995, the company signed three years ago a 10-year manufacturing contract with Adelchi, shortly after getting the machinery to assemble 70 percent of the shoes for which it was previously producing only the uppers. That doesn’t prevent this lady from considering the production of finished shoes under her own brand name at a different factory at some point in the near future.

A producer in Tirana called Astra 2000 follows a different business model, manufacturing shoes and certain types of clothes – mainly shirts and dresses for foreign customers – within the premises of the same factory, bought from the government at an auction in 2000.

The shoe part, which employs about 60 percent of the company’s 750 workers, is run by an Albanian, Bujar Dosti, who started off 15 years ago importing closeout models from Maresca and other Italian shoe companies for sale on the local market. Between 1992 and 1999 he acted as one of the two major Albanian shoe wholesalers. He ran up to ten shoe shops in the country, but closed the last one of them at the beginning of 2006.

After working for Adelchi, Filanto and other clients, including Décathlon of France, Astra 2000 is now focusing on the manufacture of about 1.5 million pairs of safety boots and 300,000 pairs of slippers annually for Astra, using their PVC and PU molding machines for the end of the process. The company gets €1.50-2.00 per pair for the labor on the boots and 55 cents a pair on the slippers. However the company gets orders from other firms from time to time, charging more on small runs of 100-120 pairs per style.

Picari, a shoe manufacturer in the rural area of Fier, earns about €3.20 a pair for the complete shoes that it supplies to its exclusive customer, Italy’s Calzaturificio St. Luis, with materials and components provided by the client. It charges only €1.80 a pair for men’s sandals with hand-stitched bottoms.

Run by two brothers, this 6-year-old company makes 300-350,000 pairs a day, mostly for men. St. Luis has been using a technician based at its factory in Bosnia-Herzegovina to supervise processes at the young Albanian factory every three weeks or so, but Picari is allowed make shoes for others from time to time to keep its workforce busy.

One remarkable aspect of the development of the Albanian footwear industry is that it has taken place with very little governmental help and against many odds in the last 15 years. For the 200-odd manufacturing companies that are now operating in the sector, it has been particularly difficult to finance their investments. The European Bank for Reconstruction and Development has provided some funds, but they have been granted through the private banks of the country, resulting in high interest charges.

For the larger Albanian firms, most of the help and the financing have come from Italian shoe companies, which tend to pay their Albanian subcontractors promptly, but there is a strong desire now to diversify the clientele internationally. Relations with the various kinds of Albanian shoe producers have been made easier through the recent establishment of a dedicated database of the country’s industry that provides details about 60 leading Albanian shoe companies.

Accessible via www.acit-al.org, it is based on a 4-year-old project conducted jointly by the Albanian Institute of Contemporary Studies, a non-profit organization run by two former Albanian trade ministers, and USAID, a U.S. government agency that assists developing countries. The database has led to various inquiries – even from a Chinese producer – and a number of interesting contacts.

In addition to the new internet portal, USAID has supported various actions to help take the Albanian shoe industry out of its relative isolation and to promote it at the international level. For example it assisted early last year in the organization of a trade mission of six Albanian shoe producers to the Marche region of Italy, followed a few weeks later by a visit of some of their factories by a group of foreign journalists, including ourselves. USAID recently supported another mission of Albanian footwear and leather processors to Greece.

Albania’s exports of footwear and components were growing by 20-25 percent annually until the EU lifted its previous quotas on Chinese footwear at the beginning of 2005. The growth rate subsequently declined, but it picked up again after the EU imposed last year its anti-dumping duties on leather shoes from China and Vietnam.

The country’s exports of footwear products have almost tripled since 2000, overtaking those of certain Asian production sources such as Bangladesh and Pakistan. According to Albania’s official statistics, it exported 28.0 million pairs of footwear uppers, removable insoles or finished shoes worth the equivalent of €162.3 million in 2006, up from 25.5 million pairs worth €144.9 million in 2005. Italy remained last year by far the biggest client with 27.8 million pairs worth €161.7 million, and it has been recording steady increases in volume and value from one year to the next.

Albania is a member of the European Free Trade Area, blessed that it enjoys Most-Favored-Nation status for its exports to the EU, the USA and other parts of the world. Local managers complain that corruption and an inefficient bureaucracy, combined with the lack of suitable infrastructures, are major obstacles to do doing business in Albania, but 100 percent foreign ownership is allowed.

However a relatively liberal and business-friendly government, elected in the Fall of 2005, introduced a series of measures that helped to make the Albanian industry more competitive, including drops of 30 percent in charges for electricity and of 43 percent in social security costs. It also promised to decrease the tax rate from 23 to 20 percent, and to do more than the previous Albanian governments to improve the state of the country’s roads, which remains miserable, requiring huge investments.