European market study Laos home decoration & personal accessories
European imports of home decoration and home textiles totalled €120 billion in 2014, of which 40% came from developing countries at a value of €48 billion. While China is by far Europe’s leading supplier of home decoration and home textiles, Southeast Asia is an important production area with four countries (Vietnam, Indonesia, Thailand and Malaysia) ranking among the leading suppliers outside Europe. European imports show an annual import growth rate of 2.5% from 2010-2014, which indicates that the market recovered from the economic crisis in 2007-2009. Current European economic forecast data suggest that the growth trend is likely to continue.
At an abstract level, the European market for home decoration and home textiles comprises four different market segments (high-end, mid-high, mid-low and low-end) that offer opportunities for suppliers from developing countries. The main market trends for home decoration and home textiles in Europe are currently the trends for individuality/originality, functional and appealing products from emerging markets, sustainable/ecological/fair products and the growing importance of alternative trade channels such as direct supply. Value chain integration is on the rise. The market demands closer cooperation, greater efficiency, transparency along the supply chain and shorter lead times.
In a survey conducted for this research among 25 European importers and consultants, the sources indicated the highest market demand is for product groups such as recycled products, bags, home textiles, scarves and other textile accessories, basketry, seasonal decoration as well as wooden items, while there is less demand for small bamboo and rattan furniture, carpets, paintings, sculptures etc. The sources provided detailed information on competitive prices for a number of products and provided feedback on import experience with Cambodia, Laos and Myanmar. They suggested that Cambodia, Laos and Myanmar should not try to compete with cheap products from China or India. Instead, the countries should focus on high quality, developing their own style and functional, unique, contemporary design as well as sustainable materials.
Among the three countries that were part of this research, Laos is by far the smallest exporter of home decoration, home textiles and gifts to the European market, with a value of only US$0.391 million for selected HS codes in 2015, while imports from Cambodia were $44.874 million and from Myanmar $12.396 million. The most important product groups of home decoration, home textiles and gifts imported from Laos to Europe are 1) suitcases, bags, wallets, and 2) scarves and accessories of textile materials. While exports of suitcases, bags and wallets to Europe increased strongly in the last five years, the export of scarves and accessories of textile material decreased. Besides these two product groups, the export of all other product groups is insignificant. The main European importing countries in 2015 were Switzerland, France and Germany.
Laos has a population of 6.8 million people and a gross national income of $1,730 per capita, which is relatively high compared to Cambodia and Myanmar. However, the poverty rate is also still relatively high, with 23.3% in 2012/2013 according to the poverty headcount ratio at national poverty line level.
The Department of Handicraft Promotion at the Ministry of Industry and Commerce in Vientiane estimates that the handicraft sector is comprised of about 20,000 family firms, of which 1,300 are small firms, 52 are enterprises and 10 are big factories. According to another study by UNIDO in 2003, the total number of full-time workers in the handicraft sector was estimated to be 30,000- 40,000, with an additional employment of 100,000 part-time workers.
The main product group of home decoration, home textiles and gifts produced in Laos are textiles. In 2012, 70% of the members of the Lao Handicraft Association were working with textiles. The companies are largely focusing on handmade production. Laos is strong on silk and cotton textiles;
both are equally important. Laos is known for its very skilful weavers and intricate weaving patterns. The number of home-based weavers is very large; most rural households are said to have a weaving loom. Besides silk, cotton is becoming more and more popular, particularly in combination with indigo dyes for the tourist market. A number of small- and medium-sized enterprises have a larger number of looms. The number of small- and medium-sized enterprises with more than 10 looms is estimated to be 500. Out of about 1,000 small- and medium-sized companies trading textile products, only very few are exporting. However, out of 14 textile companies assessed for this study, 13 report ongoing export activities.
The most common non-timber forest products (NTFP) are rattan, bamboo and a local fibre called pied. Laos still has abundant NTFP raw material resources. All quota for rattan and bamboo harvesting are currently suspended, though it is expected that this will change soon. There are about 50 small- and medium-sized enterprises, of which a few have FSC certification due to support from the World Wide Fund for Nature (WWF). Employment in rattan weaving is estimated to be 150 weavers, while more people are employed in bamboo processing. Only one FSC-certified company is exporting rattan ware at pilot project level. An interesting raw material is the natural fibre pied, which is used for making bags, purses and other small accessories.
The timber industry is also affected by the current suspension of harvesting permits. In case of wood, however, it is expected that this situation will last longer. Currently, only the use of teak and acacia from plantations is allowed. There is one integrated company mainly producing floor tiles and furniture, but also some accessories like trays, small boxes and laundry baskets based on teak wood from their own plantation. This company, with a European investor and 250 workers, has quite high turnover and exports 90% of its production, part of it also to the European market.
The main ministries in charge of the industry are the Ministry of Industry and Commerce with its Department of Industry and Handicraft and its Department of Trade and Product Promotion and the Ministry of Agriculture and Forestry. The main sector association is the Lao Handicraft Association (LHA). With five regional chambers and 78 members in 2012, it represents all handicraft companies in the country and plays an active role lobbying for the political interests of its members. There are a number of ongoing support programmes on silk and other natural fibres. The Japanese development agency JETRO especially has been working with the Lao Handicraft Association for more than ten years, providing designers to work with selected companies, as well as other forms of support. As a result companies in Laos are better qualified, which is an advantage other programmes can build on.
The greatest export promotion potential for home decoration, home textiles and gifts in Laos is in textiles (silk and cotton). There are significant exports to Europe, there are quite a few companies with export experience and the industry has high relevance for employment and income generation. The potential for non-timber forest products is lower. There are few companies, fewer market-ready products, less competitiveness, and current exports to Europe amount to just a few thousand dollars. However, ongoing initiatives to increase sustainable supply capacity, including FSC certification, deserve to be supported. Wooden home decoration products can only be recommended if they are from sustainable sources. As there is only one company with export-ready products, it is practical to combine it with non-timber forestry products in one group, ‘NTFP & Wood’.
A general advantage of the home decoration, home textiles and gifts value chain in Laos are the good framework conditions, insofar as the government supports the handicraft sector, customs clearance seems to be uncomplicated, there is no particular export license needed and no export tax applied for textile products. However, the government has not implemented a comprehensive handicraft sector strategy and there are only a few initiatives on skills training for handicrafts.
The main strengths of the textile industry in Laos are the very large number of weavers, sophisticated silk weaving techniques and a good combination of in-house production and outsourcing to weaver networks. There are market opportunities on the European market for hand-spun, handwoven cotton with indigo dyes for scarves and for a range of home textiles such as blankets, cushion covers and table cloth. Simplified designs of silk items are attractive for the European market as well.
The main barriers hindering silk & cotton exports to Europe are relatively high product prices, little design adaptation to follow European market trends and no regular trade promotion support to increase exports to Europe. The main barriers hindering the export of NTFP & wood products to Europe are small quantities, simple products and no regular trade promotion support.
Laos can benefit from direct purchasing of silk yarn and accessories in Vietnam and can learn from the organisational models of Vietnamese companies. Mobilisation of Vietnamese experts for technology transfer, participation in regional trade shows such as LIFESTYLE Vietnam and an exchange on organisation development among the handicraft associations would be welcome developments, and would help Laotian companies to become more competitive.
Suggested solutions to upgrade the value chain include that the textile industry in Laos reduces its dependence on the domestic market and develops the export market more. The reliance on silk should be reduced and the production of final home textiles and scarves made from cotton increased. Hand-spun local cotton production, indigo dyes and local sericulture should be promoted, as well as direct purchasing of silk in neighbouring countries. Offering training on productivity development and quality control, product diversification, and setting up a design institute/school and a trade fair participation programme should improve the competitiveness of the industry. The expected impact would be that 10 companies double their current combined export turnover of $470,000 per year and increase their permanent and part-time workforce by 320 workers.
Business models for producers of non-timber forest products and wooden decoration items need to be based on sustainable management of natural resources. The introduction of certification schemes requires access to markets that allow covering the cost of certification. Access to larger markets like the European market and regular export of larger quantities are needed. Potential customers need to be identified, particularly on the mid-high, eco-oriented fair trade niche market. Market exposure needs to be increased to develop better know-how and contacts; adaptation of product design and quality is necessary. The expected impact would be that 5 companies double their combined annual turnover of $250,000 and provide employment to an additional 300 workers.
As for improving the framework conditions, the Lao Handicraft Association’s role in lobbying for improved framework conditions and on providing training and information services to its members should be strengthened.
The total impact of upgrading the value chain that can be expected within a period of five years is estimated to be an increase in exports of $720,000 per year and the creation of 620 jobs. This impact should make it possible to develop a positive project business case with a generated impact higher than the investment required. A support project to increase the exports of home decoration, home textiles and gifts to Europe is therefore recommended.
As for the Social Responsibility Risk assessment undertaken, most companies are small and lack appropriate documentation and control mechanisms. Only 2 of 20 companies can refer to external certification or auditing. Most of the companies assessed are especially important for the employment of women. Out of 20 companies assessed, 17 are managed and/or owned by women. Moderate risks should be addressed with activities to reduce child work at family level, improve occupational health and safety, reduce environmental pollution and corruption and ensure better traceability of the origin of inputs.
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