Despite an economic slowdown in 2016, Vietnam has come out of it successfully. In fact, in a recent event, Le Tien Truong, General Director of Vietnam National Textile and Garment Group, claimed that many textile and garment manufacturers had already received export orders in January itself for the first two quarters of 2017, which in all probability should see a surge in the garment export market for the entire year. “Saying 2017 was good for Vietnam would be an understatement. I would say that the first quarter of 2017 was excellent,” averred Trinh Hoang Anh (Andy), Deputy General Director, Camle JSC, a Vietnamese trading company that has a rich experience of 30 years in consulting and supplying all types of machines that are essential for garment sector. Andy was talking to the Apparel Resources team at the recently concluded SaigonTex. Sharing the same sentiments, John Dulip Kumar, Divisional Head at Li & Fung said, “Stable Government and steady economy coupled with highly literate and skilled labour, has today made Vietnam a strong global player in export and manufacturing.”
It’s not that the garment industry in Vietnam is devoid of problems and challenges. The increasingly strong competition from other manufacturing destinations, both existing and emerging, has also put pressure on domestic textile enterprises in expanding markets and seeking customers even at the risk of declining orders. According to experts, earlier apparel orders constantly surged into Vietnam, thanks to its cheap labour; but it is no longer an advantage today, as labour costs have increased hugely. The orders have, consequently, shifted to the cost-efficient countries like Cambodia, Laos and Myanmar which provide tax benefits for exporting goods to Europe and the US – two of the largest export markets for Vietnam’s textile and garment industry.
Contrary to widely perceived notion that the US withdrawal from Trans-Pacific Partnership (TPP) sent shock waves among the countries that were party to the agreement, including Vietnam…, the garment industry in Vietnam has thrived without TPP holding the second biggest market share in US and Japan. Industry watchers believe that the only way forward for the industry is moving upwards…
However, last year the Government signed a Free Trade Agreement (FTA) with the European Union, eliminating trade tariffs by 2018, among other provisions. This along with ASEAN integration and Regional Comprehensive Economic Partnership (RCEP) has not only helped Vietnam in diversifying its economic allies but also made the country more attractive for foreign investments. “FTA is fabric forward. So investments will continue,” remarked Dulip Kumar. Consequently, Vietnam has now seen a rise in FDI from China in the first two months of 2017. “Chinese investments are likely to continue,” avers Le Xuan Nghia, a local Economist. Further corroborating on this, Nobuhiro Nishimine, General Director, Shima Seiki, Vietnam mentioned that though labour cost is increasing in Vietnam, other factors such as efficiency, productivity and management have raced Vietnam ahead of many countries like Cambodia, Myanmar and Laos.
Today, the US tops markets for Vietnamese garment and textile with revenue of nearly US $ 1.08 billion, up 5.8% year-on-year, followed by Japan with US $ 253 million, and South Korea with US $ 215 million. So the truth remains that Vietnam is still the biggest attraction for foreign investors. There has been expansion of the plant by Taiwanese Polytex Far Eastern Group in Binh Duong Province to manufacture polyester fibre products. The investor has been granted a license to increase investment capital by an additional US $ 485.8 million in less than two years after making the first investment in the project, which raises the total investment to nearly US $ 760 million. Vietnam Textile and Apparel Association (VITAS) has recently said that a number of South Korean investors are also planning to expand their production in Dong Nai and Binh Duong provinces to exploit export markets in the near future. The decision to increase capital investment, considering the textile and garment export has had a difficult 2016, shows the confidence of foreign investors.
Another major bottleneck because of which the garment sector in Vietnam is always seeking measures to address is how to get rid of the present scenario of outsourcing with low added value, while avoiding a dependence on imported raw materials (the country still has to import more than 80% of raw materials) to control prices and increase competitiveness. Although the Vietnam National Textile and Garment Group and several major enterprises have invested in spinning, weaving, dyeing and finishing chains, it does not seem enough to meet the requirements of thousands of companies specializing in garment exports. However, the Government and enterprises are all set to invest more in creating a domestic supply chain so that the gap is filled, and filled soon.
FACTS
USA invested with a revenue of nearly US $ 1.08 billion, up 5.8%.
Japan invested with a revenue of US $ 253 million.
South Korea invested with a revenue of US $ 215 billion.
Due to limited resources, most local enterprises gradually invest each year. This situation is in contrast to FDI as they represent less than 25% of the nearly 7,000 textile enterprises nationwide but account for 70% of the total export capacity. This shows that the enormous advantages of overseas companies over domestic enterprises will only continue to grow if reasonable policies and development direction are not framed soon. By 2018, Vietnam’s garment industry has been forecast to face many challenges, especially the small and medium-sized enterprises (SMEs), facing the risk of shutting down due to poor competitiveness and extremely difficult production conditions. Therefore, companies need to change production methods towards ODM and OBM models, while reducing costs, increasing productivity, investing in technologies and diversifying products. The trend is, slowly but surely, changing. Several local indigenous companies are now changing according to what the world is expecting them to, and it won’t be long before many locally developed factories will begin to open out to global demands.
The Government of Vietnam and concerned ministries are now encouraging administrative reforms and ensuring that assistance is provided to all policies with regard to capital, infrastructure, employment, income and health insurance to reassure businesses for SMEs. “When we import sewing machines, we do not have to pay taxes and so we can sell them cheap. Therefore, the Government of Vietnam has been providing incentives and supporting the local industry,” said Andy.
Do Thi Minh Hanh, a labour activist, had grown habitual to being beaten, hospitalized and jailed for her work in a country where independent trade unions are banned. So it gave her aspirations a reprieve when Vietnam reached a trade deal with the United States and other countries that called for its members to bolster workers’ rights and protect independent unions. However, that hope ebbed in January, when President Trump pulled the US out of the TPP. Hanh lamented, “The Government never wanted to have independent unions in Vietnam.” As Trump now vows to rethink relations with trading partners, he could also discard accompanying pledges the US has won from other countries to protect workers’ rights and the environment. American negotiators in recent years have added labour and environmental protections to trade deals, as anti-globalization sentiments rose in the US. Over the past 24 years, the US has struck 13 FTAs, covering 19 countries that include worker and environmental protections.
According to the country’s Deputy Prime Minister Pham Binh Minh, “Vietnam must train and re-train its labour force, reform university education, and improve vocational training to create a talent pool with higher skill and expertise levels. We are stepping into the world’s fourth industrial revolution where advanced technology will be applied. Vietnam needs a new growth model that focuses on quality, productivity and knowledge.”
The Ministry of Industry and Trade has submitted a proposal to the Prime Minister Nguyen Xuan Phuc suggesting that in parallel to investment in production technology to improve traders’ competitiveness, traders should consider strategic activity such as trade promotion to seek more markets. “When the markets balance demand and supply, we will lose our competitiveness if we still hire brokers. So, it is necessary to push direct transactions, quickly satisfying clients’ demands, especially accelerating delivery for competitiveness – A leap towards sustainable competitiveness,” said Hoang Ve Dung, Deputy Director General of VINATEX. Free trade, business deals, Government giving trade tariffs, incentives, tax rebates, holidays, etc. are all set to make investing climate interesting.
Yes, the leap towards sustainable competitiveness is very much there. The initiatives taken by the Government combined with the effervescence and perseverance of workers – despite all challenges – is slowly making Vietnam a dream destination for all foreign investors.
A new era of growth and sustainability has begun!
