A declining economic sector’s new positioning: Hungary’s footwear industry after the change of the political system

Abstract

The footwear industry is a highly internationalised, design and labour intensive sector which functions within the framework of so-called buyer-driven commodity chains. The costsensitive mass production shows a significant spatial mobility because of the optimisation strategies of global players: It settles in regions of cheap labour (mostly Asia and – within Europe – Southern and Eastern Europe). Companies in developed countries participate in the international division of labour as leaders of footwear value chains as well as producers of premium and special products.

The Hungarian footwear industry with its remarkable tradition had been integrated into the new global market after the change of the political system. It tried to compensate for the loss of its former foreign and domestic markets by toll manufacturing as well as by producing for special market segments. The sector experienced two major drops: The first one happened because of the overcapacity of the industry inherited from the socialist era. The second decline was caused by the unsustainability of the dominating toll-manufacturing in a changing foreign and domestic economic environment. The sector increasingly lost economic importance while its geographical centre of gravity drifted to the poorer Eastern part of the country.

The entreprises examined in this study are important players of the Hungarian footwear industry as well as of the economy of their microregions. They began with toll manufacturing, but various aspects of upgrading (increasing productivity, changing production structure, new functions within the value-adding chains) show that they are now more than classic toll manufacturers. But they are still located in peripheral microregions where labour is cheaper.

Nevertheless, these companies are forced to change their strategy because of low and decreasing profitability of toll manufacturing and because they have to diversify in present-day markets. Beside toll manufacturing, it became more important for them to develop and sell own products – first on the Hungarian market and later internationally. Present outsourcing of some of the most labour-intensive parts of production shows that it will be a big challenge to retain the whole production process of middle-priced products within Hungary (Hungarian producers are still benefiting now from their geographical position within the EU and the superior quality of their products in comparison to those of cheaper Asian and Eastern European competitors).

Alternatives may materialise in outsourcing where Hungarian companies may take the role of mediators or – in case of successful own products – the role of leaders within the value chains. Footwear industry integrating all production activities is possible to sustain only in special market segments which are less endangered by cheaper competitors.

The footwear industry is a good example of the permanent need for adaptation caused by the changing global and local economic environment influenced by economic transition as well as globalisation after the change of the political system. The strategies of the players had to be rethought again and again in order to find survival and developmental strategies. The strategies of foreign enterprises as well as the possible roles of local firms within the transnational value chains will play a decisive role in the future of this sector in Hungary.