Serbia’s textile, clothing, leather and footwear industry has contracted from one of the largest branches of the former Yugoslav economy into an export-dependent manufacturing sector employing fewer than 50,000 people. The decline in scale has been dramatic, but the more immediate problem is structural: much of the surviving industry still depends on low-margin subcontracting for foreign brands at a time when wages are rising, skilled workers are becoming scarce and European customers are demanding greater product traceability.
During the 1980s, more than 250,000 people worked in Serbia’s textile and clothing sector. Large industrial systems such as 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 each.
The industry covered almost the entire value chain, from yarn and fabric production to knitwear, finished clothing, household textiles and exports under domestic brands. Leskovac, Vranje, Niš, Pirot, Loznica, Belgrade and Novi Pazar were established production centres with trained labour, technical schools, supplier networks and export experience.
That integrated system largely disappeared during the 1990s and early 2000s. The break-up of Yugoslavia fragmented the domestic market and supply chain, while sanctions, lost export contracts, underinvestment and unsuccessful privatisations weakened or eliminated many of the largest producers. Asian manufacturers subsequently captured much of the European mass-market clothing business on which Serbian factories might otherwise have relied.
Employment has fallen by approximately 80 per cent from its late-Yugoslav level. Around 49,800 people now work in textiles, clothing, leather and footwear, equivalent to roughly 2.1 per cent of Serbia’s total formal employment. Clothing production remains the largest component, employing about 27,700 workers.
The corporate structure has also changed completely. Instead of more than 100 large industrial systems, the sector now consists of approximately 1,540 active companies, predominantly small and medium-sized businesses. When some 6,100 registered entrepreneurs are included, the wider industry contains nearly 7,600 business entities, many of them operating on a small scale with limited investment capacity.
Domestic private companies dominate numerically, while several of the larger production facilities have been controlled by investors from Italy, Germany and Turkey. Serbia’s main competitive offer has been relatively affordable labour, proximity to the European Union, preferential trade access and the ability to deliver smaller orders more quickly than Asian suppliers.
The result has been an industry heavily focused on “lohn” production, under which a foreign customer provides the design and often the material, while the Serbian factory performs cutting, sewing, finishing and packaging. The finished goods are returned to the customer or exported to another market.
This model generates employment and exports, but leaves a limited share of the final retail value in Serbia. Branding, design, material procurement, distribution and retail margins remain with the international customer. Serbian manufacturers are frequently paid only for the processing stage and carry considerable exposure to wage increases, energy prices and sudden changes in foreign order books.
The country exported approximately €1.5 billion of textile, clothing, leather and footwear products in 2025, representing around 4.4 per cent of total merchandise exports. Export value nevertheless declined by 3.3 per cent from the previous year, indicating that Serbia is not insulated from weakening European demand and growing price pressure from Asia, North Africa and Turkey.
The European Union remains the industry’s principal market. Serbia’s geographical position allows factories to supply EU customers more quickly than producers in Bangladesh, Vietnam or China. That proximity is valuable for shorter fashion cycles, replenishment orders, specialist workwear and relatively small production runs.
Yet location alone is no longer sufficient. Serbia’s low-cost advantage has narrowed as the statutory minimum wage and general labour costs have increased. Manufacturers cannot easily pass those costs to foreign customers because international brands have access to competing production centres with substantially larger labour pools and lower unit costs.
The pressure is visible in the wage data. Serbia’s average monthly net salary reached RSD 121,805 in April 2026, while the average in textile manufacturing was RSD 99,779, approximately 18 per cent below the national figure.
The position in clothing production is considerably weaker. Average net pay stood at only RSD 79,976, around 34 per cent below Serbia’s national average and equivalent to approximately €680 at the prevailing exchange rate.
Within manufacturing, only wood processing excluding furniture reported a lower average salary, at RSD 75,264. By comparison, employees in coke and petroleum-product manufacturing earned an average RSD 231,773, while tobacco manufacturing paid RSD 223,507.
Low wages once supported Serbia’s attractiveness as a nearshore manufacturing location. They are now contributing to the industry’s labour shortage. Experienced sewing-machine operators, cutters, pattern makers and production technicians are ageing, while younger workers often prefer retail, logistics, services or other manufacturing sectors offering higher pay and less physically demanding conditions.
Factories therefore face a difficult equation. Raising wages is necessary to retain skilled employees, but labour commonly represents one of the largest components of the value added by a subcontracting plant. Without higher productivity or better contract prices, wage growth can eliminate already-thin operating margins.
Recent factory closures demonstrate the fragility of the model. Benetton closed its Niš production operation in 2025, affecting about 950 workers. Turkish-owned Jeanci had previously ended production in Leskovac, where around 700 jobs were lost, while Danish workwear producer Kentaur closed its Vranje operation in late 2025, affecting more than 250 employees.
These departures were not identical. Benetton was undergoing a broader corporate restructuring, while other manufacturers cited operating losses, changing orders and rising costs. Together, however, the closures show how quickly a local labour market can be affected when a foreign-owned factory performs a narrow production function that can be transferred elsewhere.
Not all foreign-owned textile manufacturing in Serbia is retreating. 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 business illustrates that Serbian production can remain commercially relevant where it is embedded more deeply in a company’s European supply chain and supported by long-term investment.
Yumco also continues production in Vranje, with a greater emphasis on uniforms, protective clothing and institutional customers. This segment has different commercial characteristics from fast fashion: orders can be larger and more predictable, technical specifications create higher barriers to entry, and procurement decisions are not based solely on the lowest sewing cost.
Serbia’s strongest opportunity lies in moving away from basic assembly towards products where proximity, certification and delivery reliability matter more than the absolute cost per working minute. Workwear, military and police uniforms, protective equipment, medical textiles, technical fabrics, specialist knitwear and small-batch premium production offer more defensible margins than mass-market fashion.
Domestic brand development is another route, but it requires capital and skills that contract manufacturers have not traditionally needed. A successful consumer brand must finance product development, inventory, marketing, retail distribution and e-commerce. These activities can produce far higher margins than lohn manufacturing, but they also transfer demand and inventory risk to the Serbian company.
Between 2019 and 2023, the textile, clothing, leather and footwear industries received approximately €179.4 million in net foreign direct investment. The largest annual inflow was recorded in 2021, at €61.5 million. Relative to the sector’s employment and export base, these figures suggest that investment has been meaningful but insufficient to produce broad technological renewal.
Future investment will increasingly have to target automation, digital cutting, production planning, energy efficiency and traceability rather than simply adding sewing capacity. Clothing production cannot be fully automated, particularly for short runs and complex products, but digital pattern systems, automated fabric spreading and cutting, real-time workflow monitoring and better inventory management can materially improve labour productivity.
The next challenge will come from European product regulation. The EU’s Ecodesign for Sustainable Products Regulation is creating a framework for stricter durability, repairability, recycled-content and information requirements. Textiles are among the priority product groups expected to face detailed rules.
The planned Digital Product Passport will require manufacturers and brands to maintain structured information on material composition, origin, production processes, chemicals, environmental characteristics and potentially repair and recycling instructions. Requirements for textiles are expected to begin emerging from late 2027, although the precise timetable will depend on the adoption of detailed European rules.
For Serbian manufacturers, the passport will turn production data into a condition of market access. A factory will need to identify materials and suppliers, connect batches to individual orders, maintain reliable records and transmit information to the EU customer in a standardised form. Paper records and fragmented spreadsheets will become increasingly inadequate.
The investment requirement will be substantial for smaller companies. Enterprise software, labelling systems, supplier verification, environmental data, quality management and staff training all carry costs. A small subcontractor cannot easily recover those expenses when the foreign customer negotiates primarily on labour price.
EU buyers will also face pressure to examine working conditions throughout their supply chains. Serbian manufacturers dependent on European brands will encounter closer scrutiny of wages, working time, overtime, health and safety, freedom of association and grievance mechanisms.
This places the industry’s low-wage model under pressure from two directions. Workers require higher incomes to remain in the sector, while customers and regulators are demanding more evidence, better environmental performance and stronger social standards. Compliance costs are rising even where production volumes and contract prices are not.
Serbia’s textile industry still has assets that are difficult to recreate: a long manufacturing tradition, experienced workers, proximity to EU distribution centres and a network of small companies capable of flexible production. But preserving employment will require a different industrial proposition from the one that attracted low-cost assembly orders during the previous two decades.
State support based primarily on subsidies per job risks maintaining vulnerable operations without addressing productivity and market position. Future incentives would produce stronger results when tied to automation, employee training, proprietary products, export diversification, environmental certification and Digital Product Passport readiness.
The industry no longer has the scale to return to the vertically integrated structure of the 1980s. Its more realistic path is to become a smaller but more productive European nearshore platform specialising in technical, certified and time-sensitive products. Without that transition, rising wages and tightening EU requirements will continue to expose factories whose competitiveness rests mainly on workers being paid substantially below Serbia’s national average.
