Putin’s war hits textile industry in Ukraine – Economy

Joachim Beer did not hesitate for long. As soon as Russia’s war against Ukraine began on February 24, “we shut down our three factories in Ukraine,” says the CEO of the textile company, Dr. Bock Industries in a video call. The German company has around 500 employees in Ukraine, around 90 percent of whom are women. With a few volunteers, attempts were made to send finished goods, says Beer. All employees have been given the freedom to choose whether they want to come to work or not. “Most would rather stay at home.” But very few want to leave Ukraine because they are connected to the region. “In the beginning they were afraid, but gradually a spirit of resistance develops. And the men have to go to war. Our local manager is now on call.”

A company had to provide buses to the military

In the Polonne and Pulyny regions in western Ukraine, the company produces 2,700 trousers a day for brands such as Boss, Brax Leineweber, NN07 and others. According to Beer, the companies are located in more rural areas, which are “not necessarily the target of military action by the enemy. But you don’t know what’s going to happen next.” And the city of Zhytomyr, which was bombed, is only an hour and a half away. Before the war, the employees were brought from home to the factories in their own buses. That doesn’t work either. “We had to make part of our fleet available to the military.” The laundry in the city of Nowohrad is more at risk because chemical additives are used there and it is located near a military area. Textiles are finished in the laundry, for example dyed, washed, ironed, labeled and packaged, depending on what the client has ordered.

In the Soviet Union, Ukraine was a center of the textile industry. As the industry collapsed, the non-governmental organization Clean Cloth Campaign wrote in a 2017 country report. Then a growth phase began that came to a standstill with the financial crisis of 2008/2009. The military conflict over the annexation of Crimea by Russia in 2014 then hit the industry again. Most of the factories are located in western Ukraine, but a few are also in the highly competitive Kharkiv, Chernihiv and Sumy regions, the organization said.

There are very different statements about the size of the industry. According to Ukraine Invest, a state investment support vehicle, there are more than 2,500 fabric, clothing and footwear factories employing more than 236,000 people. Ukraine Invest names the companies Adidas, Benetton, Boss, Esprit, Marks & Spencer, Mexx, Next, s.Oliver, Tommy Hilfiger, Triumph and Zara as the main players. According to the General Association of the German Textile and Fashion Industry, the Ukraine plays a “subordinate role” for German companies as a manufacturing location.

The brands do not expect delivery bottlenecks

SZ inquiries show that many fashion brands do not manufacture themselves in the Ukraine, they have them manufactured. Hugo Boss, s.Oliver and Adidas work together with partners there. Overall, the production volume in the Ukraine accounts for less than two percent of the procurement volume, which s.Oliver does not want to quantify. “We do not expect delivery bottlenecks,” said the fashion chain. Hugo Boss’ three suppliers make leisurewear and outerwear, such as coats and trousers. Production accounts for “less than one percent of the procurement volume”. Due to the current situation, production is “largely” stopped. Boss is also considering the possibility of moving parts of the production to other European countries or “to our own manufacturing facility in Izmir”. The answer from the sporting goods manufacturer Adidas is similar: “Of the more than 500 independent suppliers worldwide, one supplier with three locations is in the Ukraine.” The proportion of the total delivery volume is therefore very small. “Therefore, delivery bottlenecks are not to be expected,” says Adidas.

The situation is different for the German leather goods specialist Picard, which holds 70 percent of a joint venture with a Ukrainian partner in Mukachevo in western Ukraine. He is still getting the goods out and the raw materials into the country, says company owner Georg Picard. The family business with 1,200 employees worldwide and around 20 million euros in sales produces bags, bread baskets, dog leashes, belts and much more there. 180 people work for Picard in Ukraine, most of them women. Production continues, says Picard: “That was the first thing the manager asked us: ‘Please don’t stop production, the people here need the money’https://www.sueddeutsche.de/wirtschaft/. “The prices for groceries have more than doubled. Many people have fled to Mukachevo. “Each built-on square meter is double or triple occupied,” says Picard. Refugees are also housed in the plant. “They don’t want to leave the country so that they can quickly can go home when the war is over,” says Picard.

Open detailed view

Picard has his experience with political upheavals. He founded the joint venture in Ukraine in 2011 because the factory in Tunisia could no longer be maintained after the Arab Spring. “The mentality of the people had completely changed. Employees stayed away from work,” says Picard. He attaches great importance to in-house production in order to preserve the know-how. “Many others have given up their own production because they perceive the factories as a burden and work together with contractors. That is more flexible,” says Picard.

In the production network of Dr. Bock, which also includes Romania, Bulgaria and Italy, Ukraine is an important node. The company employs a total of 1400 people. Fabrics and – as it is called in technical jargon – accessories, such as buttons and sewing threads, get the production companies in the Ukraine from Romania or directly from the customer. Pants made in Ukraine are labeled “Made in Ukraine”.

Open detailed view

Dr. Bock has been in the Ukraine since 2006, working with contractors there from the late 1990s. “And the wages were significantly lower,” says Beer. They still are. According to Beer, the minimum wage is 6,500 hryvnia, which is the equivalent of almost 200 euros. “Ukraine is no longer the cheapest country in Europe, but it’s still one of the cheapest,” says Beer. “We are now driving on sight. We can only wait.” The periods of time for the scenarios are getting longer. “First we thought we’d close for a week, then two weeks, now we don’t know if it’s four or eight weeks or even longer.” And now? “We don’t know,” Beer said.

The goods are still in Ukraine, both the finished textiles and the raw materials. “We think and hope like everyone else, maybe it will be over soon.” But more and more often, Beer is toying with the idea of ​​getting the goods out after all. But even that is difficult. “At the moment, no freight forwarder is going to Ukraine voluntarily. The trucks, including those from foreign companies, can be confiscated.” And where should he take the goods? “Our own production capacities are currently fully booked because many companies have brought production back from Asia. There is hardly any free capacity in Europe.” Does Beer’s scenario also include the possibility that production in Ukraine could be permanently shut down? “We don’t want to waste any thought on that at the moment.”

The consumers will probably feel little of the concerns of the textile workers

It looked as if the company could leave the consequences of the pandemic behind. In 2019 the group had a turnover of 31 million euros, in 2021 it was almost 24 million euros. “We have planned 28 million euros for this year,” says Beer. “It’s going to be difficult now.” Consumers in Europe will probably feel little of the concerns of the workers in the Ukrainian textile factories. There is still an oversupply of textiles. “We don’t have the same price elasticity as with petrol,” says Beer. “Competition is intense. And we have fixed supply agreements. We can’t just raise our prices for no reason.” But there are reasons. And in this exceptional situation, the customers let themselves be talked to, says Beer – about delivery dates and prices.

Entrepreneur Picard is also considering alternatives. He could move part of the production to the joint plant in Bangladesh with around 900 employees. Or try to find production capacities in Europe. “But they’re pretty much fully booked because business is picking up again and many factories had to close during the pandemic because they weren’t working to capacity,” says Picard on the phone. He hopes it doesn’t come to that and “the war won’t come to Mukachevo.”