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Dec. 2006, pdf, 2.3 MB

Scope of the study

The footwear industry as defined for the study purpose covers the business activities specified in NACE Rev. 1.1 Group 19.3. In 2003, the EU-25 footwear industry's turnover was €26.7 billion, representing about 0.5% of total EU-25 manufacturing turnover.

The economic background for e-business

The footwear industry is dominated by small and medium sized enterprises (SMEs). This structure can be considered as both a strength and a weakness, as SMEs are generally more flexible, and yet at the same time more likely to lack investment capability. At present, the footwear industry is also highly globalised. Competition from countries with low labour cost and less-regulated working conditions has forced EU footwear production into serious restructuring strategies and re-location policies. The overall performance of footwear in the EU has been deeply affected by this unbalanced supply to the global market.

Today, the European footwear industry is a mature sector where companies find it difficult to sustain a significant level of growth; it is strongly pulled by a highly unstable and rapidly changing demand, due to fashion-related and seasonal fluctuations. A profound restructuring of the distribution system is also taking place, giving more bargaining power to the distributors and putting pressure on prices. More and more, firms need to pursue innovation strategies based on creativity, quality and differentiation of products.

In this context, cost competitiveness is a critical objective and driver of ICT adoption in this industry. Footwear manufacturers focus on initiatives to improve supply chain management, in order to increase their profitability. In addition to cost savings, a more efficient supply chain helps reducing cycle times and better meeting customers’ demands. Technological investments are therefore mainly used to streamline operations, partially automate formerly manual processes, improve customers’ service and knowl­edge, enable new ways of innovating products and speed up distribution.

Usage of ICT and e-business in 2006

Among the ten sectors studied by e-Business W@tch in 2006, the footwear industry is the one with the lowest overall use of ICT and e-business, in particular among manufacturing sectors. On the other hand, the survey findings also indicate that footwear firms are quite dynamic in adopting simple forms of ICT and e-business (e.g. accounting software), when such systems suit their specific needs, size and financial capabilities. What is striking is the relatively low level of e-business activity among the larger footwear companies. Although the survey results for this size-band can only be indicative, the overall picture is quite clear: e-business is not used in footwear as much as in the other sectors analysed this year by e-Business W@tch. Nevertheless, where needed and when economically justified, footwear firms also exploit ICT advantages. Several survey indicators point at this "digital divide" and a “dual face” of ICT use in footwear:

  • Internet access at the workplace: On average, significantly fewer workers in footwear companies have access to the internet at their workplace than in companies of a comparable size from other sectors.
  • Small base of ERP systems: the installed base of enterprise resource planning (ERP) systems, an important backbone for B2B integration and cooperation, is low in the footwear sector. This appears to be the case particularly among the medium-sized and large footwear companies, compared to the average in other manufacturing industries studied in 2006 by the e-Business W@tch.
  • Online procurement is much less developed in footwear than in any other sector studied this year. Only about 30% of firms from this industry said that they place some orders online, compared to a 50% all-sectors respective average. Interestingly, footwear firms that do use e-procurement appear to be quite active in ordering production materials online and in buying from international suppliers.
  • Online marketing and sales appear to have gained momentum in footwear – the gap to other sectors is smaller in this area, also considering that B2B transactions prevail in this industry. Furthermore, footwear firms are more active at the international level in this area when compared to the respective all sectors average. Nevertheless, activity has probably not yet reached the critical mass needed to trigger ICT uptake on a broad level.
  • Footwear firms are innovating, especially in terms of products where – not surprisingly – the role of ICT is not very pronounced. However, the importance of ICT is much less pronounced for process innovation in footwear than on average in the other sectors studied in 2006 by e-Business W@tch.
  • Size and cost – the main barriers: companies that did not practice e-business said that their company was "too small" for doing e-business and that they could "not afford the required technologies”.

Reasons for the delayed ICT adoption

The overall delay in ICT and e-business adoption by footwear companies in Europe, relative to other sectors studied in 2006 by e-Business W@tch, is at least in part caused by the economic circumstances and this sector’s competitive evolution over the past decades. The main reasons for this delay are:

  • Structural reasons: the high prevalence of small craft & trade companies, many of which have a low propensity toward ICT adoption.
  • Lack of “pull-potential” from distribution chains and business partners: in this industry, neither large firms nor distribution appear to be driving the adoption of e-business as in other industries. The strong competitive pressure (even in terms of survival) pushes footwear firms to be more focused on other strategic concerns, such as international competition from low cost countries. It appears that most companies do not see ICT as a viable tool to address this challenge.
  • e-Skills and the management factor. In micro and small footwear companies, the use of ICT equipment and access to the internet are often limited to the owner and to a few other key people. Knowledge and governance are not spread across organis­ations, while changing skills requirements and ICT-skill gaps are not considered as key issues.
  • Investment capability. The average small size and fierce pressure on prices and margins reduce footwear firms’ investment capability. Nevertheless, results from the survey illustrate that, presently, footwear firms are fairly in line with the average of all sectors studied in 2006 by e-Business W@tch as regards current and planned investments in ICT.
  • Thus, although the picture of a ‘digital divide’ prevails, it can also be argued that the 2006 survey data illustrate a cautious and selective approach to e‑business by footwear firms in Europe. This applies whether ICT investments are estimated as a share of total costs or in absolute terms, within the same size bands. However, considering that micro and small companies account for more than 95% of the total in this industry and the fact that the sector’s larger companies seem to be the most reluctant to spending, the sector overall is not likely to accelerate its pace towards e-business integration.
  • The complexity of technology. Footwear companies interviewed in the survey said that the complexity of technology was a main reason for not using e-business.

The picture is varied, however. There are examples of companies that reported difficulties in finding suitable solutions on the market for e-business integration with their distribution network (see the case studies on Alpina and Moreschi). Other examples show that even small companies can successfully adopt e-business, when user-friendly and low cost solutions are available (as illustrated in the case studies about INESCOP and SHOE D-Vision). This potential dichotomy indicates that there might be a need for affordable, sector-specific e-business solutions addressed to footwear industry’s SMEs.

Important e-business trends and implication

This study focuses on the following e-business trends and implications which were identified as particularly relevant for this specific sector:

  • The role of e-business in supporting enterprises’ networking. The need to efficiently manage the complex and diverse organisation of production is the main driver towards the adoption of e-business solutions in the footwear industry. A key prerequisite for any kind of cooperation along the value chain is sharing data and management information among business partners. Survey results indicate, however, that tools for online cooperation are not yet widely used in this industry and that e-integration of business processes along this supply chain is limited.
  • Integration with distribution. The competitive positioning of different footwear firms is strongly conditioned by the way they manage and integrate distribution. The main challenge is to manage effectively alternative product distribution mechanisms and resources in complex and fragmented distribution networks. There are examples of successful implementation of proprietary distribution networks in the footwear industry. However, online integration with external networks and, especially, with independent wholesalers operating with a high number of suppliers is relatively uncommon in this industry.
  • The diffusion of RFID is still limited, despite technological developments that have made this technology more functional and less expensive. RFID applications in the footwear industry presently focus on supply chain management, as well as on reducing losses due to object misplacement and/or theft. RFID is also applied in this sector for enhancing quality control procedures, product tracking and for ensuring the authenticity of objects, representing a protection against counterfeiting. However, RFID tags are currently being used more for warehouse pallets than being embedded in individual items.

Business impact

The difficult economic situation and the fact that trading relations in this sector do not require particularly advanced ICT solutions account for the cautious attitude of most of footwear manufacturers towards ICT use. The identified low level of ICT adoption across this sector is consistent with the finding that only about half the companies felt that "e-business constitutes a part of how they operate". In addition and in contrast to other sectors studied this year, the share of large footwear companies that regard e-business as relevant for their operations is not higher than the respective share of SMEs in this sector.

Nonetheless, footwear companies also observe that e-business has a positive influence on internal work processes, business process efficiency and customer service. It appears that the main impact concerns operational improvements, in particular of logistic flows along the value chain.

The e-business impact on companies’ performance (e.g. revenue growth) and on savings (e.g. for procurement costs) are less pronounced, or at least more difficult to confirm by survey results and case studies. But this holds true for most of the sectors studied by e-Business W@tch in 2006. As regards the anticipated future impact of ICT, footwear firms identify management and accounting, as well as customer support as the most important areas, followed by marketing.

Policy implications

On the basis of evidence from this report, the following issues have been identified as particularly relevant for policymaking:

  • Interoperability and standardisation. The support of projects aiming at en­hancing interoperability for the exchange of computerised data in this sector could continue. Emphasis, however, should be placed on a global classification and standard­isation scheme of products. This includes the development of such schemes, as well as their dissemination in order to raise footwear companies’ awareness about global classification activities. Policy measures could aim at fostering faster and wider implementation of standards, in particular concerning the integration with distribution. In this context, a study to analyse the effectiveness and potential benefits of the various standardisation and interoperability activities undertaken so far for this sector would also be opportune.
  • Improving e-business skills, especially among SMEs, by promoting activities which aim at improving the entrepreneurial and managerial understanding of e-business applications; providing information about e-business and support to decision-makers; improving the skills which are related to the reorganisation of working processes. Relevant policy measures may include ‘peer-to-peer’ demonstrations of successful ICT implementations, training courses in ICT and e-business management, as well as the establishment of platforms and fora where footwear companies would meet ICT and e-business solutions’ providers
  • Promote a favourable environment for innovation. Footwear companies need to pursue innovation strategies based on creativity, quality and differentiation of products in a very competitive environment. The e-Business W@tch 2006 survey results indicate that there is still considerable potential for footwear firms, notably the smaller amongst them, to exploit ICT-enabled innovative processes. In this effort, continuous investments and an improved governance of knowledge are critical. e-Business policies could, therefore, stimulate the diffusion of new technologies (e.g. RFID) that may help footwear companies in the EU to protect their Intellectual Property Rights (IPRs) and fight counterfeiting.
  • Cooperation with ICT service providers. e-Business uptake in this sector would benefit from an improved dialogue and cooperation between footwear industry and software providers, with the aim to enhance the development and diffusion of sector-specific, scalable and affordable solutions.
  • Mobilise industry associations. To increase the effectiveness of support actions for this sector, the footwear industry’s associations (at different levels: regional, national and European) should be actively involved. They can leverage actions by promoting the issues at stake among their members.

Reference to earlier sector studies

The sector was covered as part of the "Textile, clothing and footwear" in sector studies of 2004

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