There cannot be a better time than now for Vietnam! After recording an astounding growth of 10.3 per cent in garment and textile exports in the first 5 months of 2019 and now with the recent signing of EU-Vietnam Free Trade Agreement (EVFTA), there is lot of positivity in the country.
Add to it, most of the companies are fully booked and completely geared up for the business. However, one cannot deny that there are lot of challenges too.
Labour costs are rising, and so is the cost of land. Besides, the US may target Vietnam with tariffs as production is shifting from China to Vietnam. A lot of Chinese exporters have been lately found to illegally reroute orders to Vietnam to escape tariffs. US President Donald Trump is now considering to impose tariffs on Vietnam.
According to credit ratings firm Fitch, Vietnam’s low-cost appeal is also gradually waning. There is an average of 8.8 percent a year between 2015 and 2019 as far as minimum wage of the country is concerned. Currently it is VND 4.18 million (US $ 180) per month.
And foreseeing these challenges, some international apparel makers (especially Taiwanese companies) are slowing down or, in the case of some, completely halting expansion. To mention few, Makalot Industrial (Makalot producing 37 per cent of its goods in Vietnam), is now focussing on Indonesia, as the top management of the company expects Indonesia to become its most significant production base in next few years. Same is the story of Eclat Textile.
Notably, there are some more unseen things happening! One of them being that Big C supermarkets, owned by the Central Group, Thailand, have decided to temporarily stop buying apparels from Vietnamese suppliers as the group is restructuring their garment operations in Vietnam.
As far as the issue to capitalise the EVFTA is concerned, Vietnam still needs its own investment in weaving and the supporting industry to provide materials for the garment sector.
Challenges are numerous and Vietnam needs to address them fast!
