Serbia’s Textile Sector Seeks New Model Beyond Low-Cost Manufacturing

Serbia’s textile, clothing, leather and footwear industry has declined from a major industrial sector of the former Yugoslav economy into a smaller export-oriented manufacturing base employing fewer than 50,000 people. The sector now faces increasing pressure from rising labour costs, shortages of skilled workers and stricter European requirements for production transparency.

During the 1980s, more than 250,000 people worked in Serbia’s textile and clothing industry. Large industrial companies including Yumco in Vranje, Niteks in Niš, Prvi maj in Pirot, Leteks in Leskovac, Beko and Kluz in Belgrade, TIZ Zemun, Zelengora, Viskoza Loznica and Rudnik in Gornji Milanovac employed thousands of workers. The industry covered a broad manufacturing chain, including yarn and fabric production, knitwear, finished garments, household textiles and exports under domestic brands. Production centres such as Leskovac, Vranje, Niš, Pirot, Loznica, Belgrade and Novi Pazar developed skilled labour pools, technical education systems and supplier networks.

Sector Shrinks After Industrial Restructuring

The integrated production system weakened significantly during the 1990s and early 2000s. The breakup of Yugoslavia disrupted domestic supply chains and markets, while sanctions, lost export contracts, limited investment and unsuccessful privatisation processes affected many major producers. At the same time, Asian manufacturers expanded their presence in European mass-market clothing supply chains, reducing opportunities for Serbian producers.

Employment has fallen by approximately 80% compared with the late Yugoslav period. Today, around 49,800 workers are employed in textiles, clothing, leather and footwear, representing approximately 2.1% of Serbia’s formal employment. Clothing production remains the largest segment, employing approximately 27,700 people.

The structure of the industry has also changed. Instead of large industrial systems, the sector now consists mainly of smaller companies. There are approximately 1,540 active companies, while including around 6,100 registered entrepreneurs, the wider industry includes nearly 7,600 business entities. Domestic private companies dominate by number, while some larger facilities are controlled by investors from Italy, Germany and Turkey.

Export Model Relies on Subcontracting

Serbia’s textile industry has traditionally competed through lower labour costs, geographic proximity to the European Union, preferential trade access and the ability to complete smaller production orders faster than suppliers from Asia. Much of the sector remains based on “lohn” manufacturing, where foreign customers provide designs and often materials, while Serbian factories perform cutting, sewing, finishing and packaging.

This model supports employment and exports but leaves a limited portion of final product value in Serbia. International buyers typically retain control over branding, design, material sourcing, distribution and retail margins. Manufacturers performing only processing activities remain exposed to wage increases, energy costs and changes in foreign order volumes.

The sector exported approximately €1.5 billion worth of textile, clothing, leather and footwear products in 2025, accounting for around 4.4% of Serbia’s total merchandise exports. Export value declined by 3.3% year on year, reflecting weaker European demand and increased competition from producers in Asia, North Africa and Turkey.

Labour Costs Challenge Traditional Competitiveness

The European Union remains the industry’s main export market, with Serbia benefiting from its location near European customers. Shorter delivery times support production of smaller orders, replenishment shipments, specialist clothing and workwear. Despite this advantage, labour-cost competitiveness has weakened as wages have increased.

Serbia’s average monthly net salary reached RSD 121,805 in April 2026, while textile manufacturing recorded an average net salary of RSD 99,779, approximately 18% below the national average. The situation is more pronounced in clothing production, where average net pay stood at RSD 79,976, around 34% below Serbia’s average salary and approximately €680 at the prevailing exchange rate.

Only wood processing excluding furniture recorded a lower average manufacturing salary, at RSD 75,264. By comparison, employees in coke and petroleum-product manufacturing earned RSD 231,773, while tobacco manufacturing recorded average salaries of RSD 223,507. The low-wage model that previously supported Serbia’s competitiveness is now contributing to labour shortages. Experienced sewing-machine operators, cutters, pattern makers and production technicians are ageing, while younger workers increasingly seek employment in sectors offering higher wages or less physically demanding work.

Factories face pressure to increase wages while maintaining profitability, as labour remains one of the largest components of value creation in subcontracting operations.

Factory Closures Highlight Market Pressure

Several recent closures have demonstrated the vulnerability of subcontracting-based production. Benetton closed its manufacturing operation in Niš in 2025, affecting approximately 950 workers. Turkish-owned Jeanci ended production in Leskovac, resulting in around 700 job losses, while Danish workwear producer Kentaur closed its Vranje facility in late 2025, affecting more than 250 employees.

The reasons differed between companies. Benetton was undergoing broader corporate restructuring, while other manufacturers faced losses, changing customer orders and higher operating costs. The closures nevertheless showed the impact that decisions by foreign-owned companies can have when local factories perform narrowly defined production functions that can be relocated.

Companies With Integrated Supply Chains Maintain Operations

Not all foreign-owned textile investments in Serbia have declined. Fiorano, part of Italy’s Oniverse Group, formerly known as Calzedonia Group, operates between Sombor and Kula and employs more than 1,700 people. The company represents a different model, with Serbian operations more closely integrated into a wider European supply chain and supported by long-term investment.

Yumco continues manufacturing in Vranje, focusing increasingly on uniforms, protective clothing and institutional customers. This segment differs from fast fashion because contracts can involve larger and more predictable orders, technical requirements create stronger barriers to entry and purchasing decisions depend less on the lowest production cost.

Investment Shifts Toward Higher-Value Production

Serbia’s textile sector received approximately €179.4 million in net foreign direct investment between 2019 and 2023. The largest annual inflow occurred in 2021, reaching €61.5 million.

Although investment has supported the industry, the scale has not been sufficient to deliver broad technological modernisation across the sector. Future investment is expected to focus increasingly on automation, digital cutting systems, production planning, energy efficiency and supply-chain traceability rather than expanding basic sewing capacity.

While clothing manufacturing cannot be fully automated, technologies such as digital pattern systems, automated fabric spreading and cutting, real-time production monitoring and improved inventory management can increase productivity.

EU Regulations Increase Compliance Requirements

European regulatory changes are creating additional requirements for Serbian exporters. The EU’s Ecodesign for Sustainable Products Regulation is establishing stricter standards related to product durability, repairability, recycled content and information disclosure. Textiles are among the product categories expected to receive detailed requirements.

The planned Digital Product Passport will require manufacturers and brands to maintain structured information on materials, origin, production processes, chemicals, environmental characteristics and potentially repair and recycling data. Textile-related requirements are expected to begin emerging from late 2027, although implementation timing depends on the adoption of detailed European rules. For Serbian manufacturers, compliance will require improved data management, supplier tracking, batch identification and standardised information exchange with EU customers. Smaller subcontractors may face significant costs related to enterprise software, labelling systems, supplier verification, environmental reporting, quality management and employee training.

Industry Faces Need for Productivity Improvements

European buyers are also expected to increase scrutiny of supply-chain labour conditions, including wages, working hours, overtime, health and safety, freedom of association and grievance mechanisms. This creates pressure on the existing low-cost production model from both employees and customers. Workers require higher incomes, while buyers and regulators demand stronger environmental and social compliance.

Serbia retains several advantages, including manufacturing experience, skilled workers, proximity to EU markets and a network of flexible production companies.The sector cannot return to the vertically integrated industrial structure of the 1980s. Future competitiveness will depend on higher productivity, automation, workforce training, development of proprietary products, export diversification, environmental certification and readiness for Digital Product Passport requirements.

A transition toward technical textiles, certified products, specialised knitwear, protective equipment, medical textiles, workwear and smaller premium production runs could provide stronger market positioning than traditional mass-market assembly. Without this shift, rising wages and stricter European requirements will continue to challenge factories whose competitiveness depends mainly on labour costs remaining significantly below the national average.