‘Made in EU,’ or perhaps not?

Cheap transport helps the Balkans rival Asia in outsourced manufacturing of fashion brands

Workers assemble shoes that will eventually carry a European label in the Bargala factory in the town of Stip in the Former Yugoslav Republic of Macedonia, in this April 3 file photo.

By Adam Tanner & Maja Zuvela - Reuters

The road to the continent’s high fashion boutiques often leads through little-known towns in the Balkans, but you wouldn’t know it from reading the labels.

Blerza Kallajnxhi held up a cluster of labels saying “Made in EU” at her factory in Gjirokaster, Albania – the birthplace a century ago of Enver Hoxha, the communist dictator who isolated Albania from the rest of Europe – as she explained how she fills orders from abroad. “We get an order from Greece and they send the materials, the model design and the labels,” said Kallajnxhi, who bought the small factory in the mountain stronghold of Gjirokaster with her husband two years ago.

Greece – unlike Albania – is in the European Union.

In the eyes of many consumers, a product made in Europe might be of better quality than one made in China, Bangladesh or Thailand, where many fashion groups have outsourced manufacturing. But few know what “made in Europe” really means.

“Nothing says ‘Made in Albania,’” said Kallajnxhi. “Of course, we are proud of our country but that’s what the client wants.” Global fashion brands are doing nothing illegal in labeling clothes this way, provided the manufacturing includes inputs from within the 27-country bloc.

Under EU rules that are obscure to most consumers, goods made in more than two countries are said to originate in the place of “their last, substantial, economically justified working or processing.” It’s a loophole that helps to cut costs and is now more important than ever, in light of a fall in apparel demand since last September.

But EU-based fashion companies often do not advertise the full extent of their supply chains in lesser-known corners of Europe.

“It is not required that we have to add a label ‘Made in Bosnia,’ though the consumer could inform himself regarding the country of origin by reading a registration number sewn into the garment,” Jan Ahlers, vice chairman of the Ahlers AG supervisory board, told Reuters in an e-mail.

German-based Ahlers makes Pierre Cardin suits in Bosnia under license and is the label’s exclusive distributor in Germany, Austria, Switzerland and the former Yugoslavia.

Some consumer groups argue brands should be more transparent about their production, and some luxury groups say such outsourcing is a threat.

“Research shows that consumers’ trust in retailers is waning,” said Josie Nicholson, a founding member of Ethical Fashion Forum, which advocates social and environmental sustainability in the industry. “Clear and honest labeling is the best way for retailers to win back consumers’ confidence.”

Up the street in Gjirokaster, two cement bunkers remain on a hillside, a remnant of Hoxha’s paranoia about the outside world.

“It is ironic that we built these bunkers a long time ago, but we are now in NATO and are partners,” said Mustafa Devolli outside his factory making military uniforms for Greece. “We hope in the not-too-distant future to be part of the EU.” Wages in the town are around 170 euros ($235) a month, compared with more than 2,500 euros a month for European Union manufacturing jobs, according to European statistics agency Eurostat data for 2006.

Balkan factories can also rival even cheaper labor in Asia because transport to European markets costs less and is faster.

In accordance with current EU laws, factories across Serbia, Albania, Bosnia and the Former Yugoslav Republic of Macedonia (FYROM) sew and assemble clothing sold abroad bearing tags saying it has been made in the EU or in a member country such as Greece or Italy.

In Travnik, Bosnia, staff at the Borac factory say it produces items for labels such as Hugo Boss, Pierre Cardin and Burberry. In Bitola, FYROM, the company Pelister says it has sewn brands including Mango and Zara.

Hugo Boss declined to give information about its links to operations in the Balkans. Inditex, which produces the Zara line, declined official comment.

Burberry spokesman Graham Biggart said the company does not use “Made in the EU” tags, but labels that show the country of production. A Mango spokeswoman said the company had made clothes in the Balkans in the past but not lately.

“The fact that our label does not appear on products would not be so frustrating if the job was well paid,” said Borac General Manager Mustafa Sefer. “But such deals are the only guarantee for us to get products to market and pay our bills.”

Textile and shoe manufacturing are vital for the western Balkans. In Albania and neighboring FYROM, such work employs about 10 percent of the work force, industry officials say.

The Bargala shoe factory in Stip, FYROM – the largest in the region – produces shoes from Italian leather for 3 to 6 euros a pair to be sold in stores such as Marks & Spencer, said principal owner Konstadin Barzov.

A Marks & Spencer spokeswoman said, “We source a small number of our shoes from Macedonia, but we always label clearly the country of origin.” Balkan textile officials stress the difference between assembly and manufacture.

Bargala also sells from its factory to locals. Through an unmarked door in a central courtyard, workers sell shoes marked “Scarpe Italiane” (Italian shoes).

Where the practice may risk serious brand damage is in luxury: The industry is one of the last in Europe to have moved production facilities abroad to lower costs because much of a luxury brand’s credibility rests on the “Made in” cachet.

“Luxury is about where things are made,” Diego Della Valle, chairman and chief executive of Tod’s, told the Financial Times Luxury Summit in Monaco last week.

Many clothing firms in the Balkans are reluctant to discuss their work for big labels, fearing this may upset deals just as orders have already fallen sharply due to the economic crisis.

“After finishing the clothes, we put in a neutral label that has no ‘made in’ on it,” said Dimitar Stojanov, owner of the Pelister factory in FYROM. “That is later applied by the client. What they put, we don’t know.”