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  Made where?   Made where?  Ron Irwin  
         
 
Made where? Italy is to shoes as Switzerland is to watches, synonymous with high-end luxury and superlative craftsmanship. Brands like Prada, Armani, Gucci and Bruno Magli have something beyond mere authenticity: they enjoy a unique, Italian resonance that crosses cultures.

But production of high-end footwear is expensive. Other then sewing machines, no technology exists that can help workers generate high production runs of leather shoes. Further, production of the average shoe involves from forty to a few hundred stages.

 
Italy was the world’s largest exporter of shoes in all product ranges, until the 1980s when its position was overtaken by China and Hong Kong, which specialize in making products that require cheap labor. Asia holds about two-thirds of the world’s footwear market, while Western Europe has only ten percent.

Ironically, among EU countries, Italy is the biggest importer of shoes and shoe components from Eastern Europe. In 2001, Italy imported 41 percent of its leather footwear components, of which nearly 72 percent came not from Asia but from Eastern Europe, particularly Romania, thanks to regional agreements that allow easy access to the Common Market for these developing producers.

What this means is that the shoes you bought, which say “made in Italy” on the sole, may very well in fact have been made in Romania and marketed and sold under an Italian brand. It’s one thing when your sneakers come from a developing country, but those who shell out top dollar for a pair of expensive Italian shoes may balk upon learning that they probably were not made in Italy at all.

Eros Scattolin, international public relations executive, faces this situation at Geox, a shoe brand headquartered in the Italian province of Treviso. Founded in 1995, the company now sells to 51 countries and boasts a turnover of €181 million (US$211M). Although Geox considers itself an Italian brand, it depends heavily on outside countries to make its shoes. For instance the company owns a plant in the Romanian city of Timisoara, which employs 2,000 locals to work under the direct supervision of 50 Italian masters.

Says Scattolin, “From our point of view, it doesn't matter where you produce, but how you do it. We could keep on producing our shoes in Italy but they should cost much more.” Instead, while a small segment of Geox’s production is in fact still in Italy, the company works in “Romania, Slovakia, Mexico and China as well.”

Scattolin believes that in spite of the sentimentality that people might attach to shoes made in Italy, outsourcing was the way of the future for the Italian shoe industry. “Outsourcing is a must, not a choice,” he insists. “You have to go abroad in those low labor market cost countries if you want to keep a fair price, and I would add, if you want to survive.” He claims that outsourcing to cheaper locations does not challenge the integrity of the company itself, which keeps all logistics, marketing and financial departments in Italy, so that “the brain and soul [of Geox] is Italian, [while] the body is foreign.”

Scattolin is not alone in his assessment. K2 is the number one ski brand in the world, and bills itself as a dyed in the wool American brand, since 1947. Last season’s advertising promoted K2 as an “American Classic.” But since the end of 1999 the company has been building its skis not in America but in its one million square foot plant near Guangzhou City in China.

 
Recently K2 added Rawlings to its stable of authentic American brands. That would be the Rawlings that makes baseballs and baseball equipment, among other products, and is the brand of choice for Major League Baseball in the US. Despite what can arguably be called an authentic red, white and blue identity, all of Rawlings production is based in Asia, save for baseballs made for the Major Leagues, which will continue to be made in Turrialba, Costa Rica, according to Dudley Mendenhall, Senior Vice President of Finance of K2 Inc. (The only thing keeping Major League baseball production in Costa Rica is that the Major League’s obsession with statistics demands that no portion of the game -- even the location where the baseballs are made -- change significantly. As Mendenhall wryly points out, “It would be a disaster if one year after we moved the Major League baseball production to China, the home run average in the Major League doubles.”)

Workers principally in China and the Philippines produce the rest of the 126-year-old company’s baseballs, mitts, and equipment. This year K2 also bought Worth, a softball equipment producer in America, which has been based in Tullahoma, Tennessee, since 1912. In 2004, Mendenhall says, K2 will look at transitioning “certain aspects” of Worth’s production to K2’s plant in China.

Today’s sports brands, Mendenhall contends, are “all about quality and price points.” As long as these are taken care of, customers no longer care where the product is made. In any event Mendenhall says, “You cannot compete in retail if you manufacture in the USA.”

Mendenhall claims that his company can get the same (or better) quality for a product made in Asia, while paying up to twenty times less for the labor as the company could get in the US. He believes strongly that K2 enjoys the number one spot because “other ski brands are completely hung up on producing principally in Austria or Central Europe, which are not as competitive as Asia.

“There is always room for a high-end European product or pair of skis, but they will not be able to lead categories,” he explains. “Atomic makes a big deal about manufacturing in Austria. But they are losing market share because there are only so many people who want to part with $1,200 for a pair of skis (€1,028).”

When asked what the overall quality of the workmanship of the skis was from China -- where there is no tradition of either skiing or ski manufacturing -- Mendenhall insists, “The quality is better. Not the same. Better.” The K2 5500 Ski has been named the Best Value Ski of the Year for two years running by Ski magazine. Similar to the situation with Geox, research, design and communications for K2 remains in the company’s home plant, which is based on Vashon Island in Washington.

While Mendenhall is emphatic that his brand suffers “absolutely no stigma” from K2’s ski production in Asia, a quick browse of the Internet, does find hold-outs making noise about human rights abuses and other issues of offshore production. Given the culture of the hardcore ski and boarding crowd, it is not surprising that sites like Fourt2.com, which promotes “online guerilla warfare,” take a dim view of K2’s move to Asia. One contributor goes so far as to make the claim that “the skiing community as a whole supports the ‘free Tibet’ campaign,” and therefore, cannot support K2’s move to China.

Possibly, however, most consumers -- and perhaps some activists -- are simply unaware of the extent of outsourcing in the world today. A case in point would be the cut flower industry in Europe, which depends heavily on imports from Kenya. England’s national flower, the rose, is mainly grown for the British by Kenyans, citizens of the country’s former colony.

Sally Peters, in the London office of the Kenya Flower Council, says that close to 80 percent of the roses bought in the UK come from Kenya. Kenya is the world’s biggest flower exporter, she says, accounting for 25 percent of the cut-flower export market into the EU, to a value of €153 million yearly ($179M), making cut flowers Kenya’s second largest industry behind tea. On Mother’s Day in the UK, roughly 30 million Kenyan roses are sold in the UK alone. “The majority of people do not know the roses are grown in Africa,” says Peters. “People just are not concerned about where these flowers are coming from.”

Sometimes there is an outcry from the public, as witnessed recently in Canada, but generally it is never expected to heavily affect business. On May 14, 2003, an internal memo sent by the president and CEO of CN Rail, Mark Hunter, barred CN employees from using the word “Canadian” in describing the company (formerly known as Canadian National).

The Canadian Press reported Transport Minister David Collenette calling the situation “obscene,” adding that the 84-year old brand is “a great Canadian institution, one of the best railways in North America and we shouldn’t apologize for being Canadian” (from an article by Maria Babbage September 19, 2003).

Canadian in spirit the company may be, but in 1999 the company merged with American-based Illinois Central. The memo suggested that continued use of the title Canadian National in the company’s correspondence, email and voice mail would “lead to confusion with our customers and the general public.”

Still the brand stewards believe the outrage will subside without lasting effect to the brand. Mark Hallman, spokesman for CN Corporate Issues, dismissed the outcry as merely a “tempest in teapot.” He notes that, “The CN brand was voted one of the top 50 corporate logos of all time in 2000.” (In a panel sponsored by the Financial Times and Report on Businessmagazine, CN was voted number 38.)

Referring to the study, Hallman says, “It was the only Canadian brand to make the list, and the CN name is based on that corporate logo. We are trying to get consistent brand identification across the entire system in Canada and the United States. This is purely a branding exercise, and really, much ado about nothing.” He does admit that the immediate resentment the move has caused on the part of both employees and government ministers was “not anticipated.” But, he points out, in today’s business environment, dropping the identification with Canada and making “the brand name the same as the corporate logo, simply makes the best ‘brand sense.’ ”    

[6-Oct-2003]

 
  
  

Ron Irwin lectures in Branding and Business in Context at the University of Cape Town School of Management Studies in South Africa.

     
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