Vietnam: A Textile Powerhouse
Vietnam's textile and garment industry continues to raise its profits and improve its status in the global market.
Sarah C. Thomasson, Associate Editor
According to the Vietnam Textile and Apparel Association (VITAS), the country's textile and garment exports in 2010 totaled US$11.7 billion, US$6 billion of which were shipped to the United States — representing a 22-percent increase over 2009. Textile and garment exports to the European Union (EU) rose by 14 percent to total US$1.8 billion; and to Japan, up 20 percent to US$1.2 billion. In 2010, Vietnam was the second-largest exporter of garments and textiles to the United States, the third-largest to Japan and the EU, and the fifth-largest globally. Vietnam's garment and textiles exports currently account for 2.5 percent of global market share, VITAS reports.
Vietnam has not by itself signed a free trade agreement (FTA) with any other country, but as a member of The Association of Southeast Asian Nations (ASEAN), it has benefited from FTAs that organization has signed. For example, Vietnam's exports to South Korea have significantly increased, thanks in part to the ASEAN-South Korea FTA: In the first quarter of 2011, its garment and textile exports to South Korea surged 114 percent over the same period in 2010. Vietnam is now the second-largest exporter of garments to South Korea after China.
Vietnam currently is in negotiations to sign FTAs with four important markets. It is a member of the Trans-Pacific Partnership (TPP) — a group of countries also including Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and the United States — that is negotiating a regional FTA. It also is negotiating a FTA with the European Free Trade Association, whose members are Switzerland, Iceland, Liechtenstein and Norway; a bilateral FTA with Chile; and a FTA with the EU. If signed, the agreements could benefit Vietnam's textile industry by improving the competitiveness of its exported goods and increasing foreign direct investment into Vietnam.
A number of countries including Denmark, Uzbekistan, Japan, North Korea and Thailand have been in discussions with Vietnam concerning textile and garment partnership opportunities as well as ways to strengthen trade and investment. Textile and garment companies based in Denmark, Hong Kong, Thailand and elsewhere have established new production in Vietnam or have relocated production from China and other Asian markets to Vietnam to benefit from its low labor costs. Although Vietnam's payroll costs are higher than that of other countries in the region, its manufacturing and exporting capability continues to attract importers.
Vietnam has increased its machinery investments in parallel with its increasing textile and garment production. The German Engineering Federation (VDMA) Textile Machinery Association reports that in 2010, German exports of textile machinery and accessories to Vietnam increased by nearly 114 percent to total 33.5 million euros. First-quarter 2011 export figures for spinning and weaving machinery indicate a significantly greater increase over the same period in 2010: Spinning machinery exports were worth 4.3 million euros, compared to 1 million euros in the corresponding period in 2010; while weaving machinery exports were worth 2.5 million euros, compared to 62,000 euros in 2010.
According to VDMA data on 2010 international textile machinery shipments to Vietnam, the country imported most of its textile machinery from China and Hong Kong, whose combined exports to Vietnam in 2010 totaled 89 million euros. Other places that exported significant amounts of textile machinery to Vietnam included South Korea, whose machinery exports totaled 53 million euros; Japan, 33 million euros; Taiwan, 30 million euros; and the United States, 11 million euros.
A state-owned and controlled conglomerate, VINATEX is Vietnam's largest textile and garment corporation as well as its biggest garment producer and exporter. The group includes mother company Vietnam Textile Garment Group, research and training centers, some 120 sub-companies and 2.5 million employees. In 2010, its revenues increased 26 percent year-on-year to more than US$1.5 billion; export turnover increased 23 percent to US$2.1 billion; and net profit increased 23 percent to US$45 million. VINATEX accounted for 18.75 percent of Vietnam's total textile and garment exports during 2010.
In the first half of 2011, VINATEX reported US$941 million in revenue — 33-percent higher than first half 2010 revenues; and exported goods totaling $1.23 billion — a 32-percent year-on-year gain.
In January 2011, Deputy Prime Minister Hoang Trung Hai called on VINATEX to make its growth model more intensive by relocating production bases, increasing products' added value, developing manpower, renewing technology and improving employee working conditions.
Although garment manufacturers are receiving plenty of orders, the prices of many imported raw materials and energy, labor, and transportation costs also have risen — all of which impact domestic production. According to VITAS, Vietnam annually imports up to 80 percent of garment inputs, and domestic companies are capable of supplying only up to 50 percent of the needed cotton, fiber and other materials. As part of its garment and textile development plan for 2010-2015, the sector aims to meet 45 percent of domestic fiber demand in 2011 and 70 percent in 2012, and is ramping up fiber technology investments.
Vietnam's PetroVietnam Petrochemical and Textile Fibre Joint-stock Co. (PVTex) has invested US$324.9 million to build the Dinh Vu polyester staple fiber plant, which will produce 500 metric tons of fiber daily and meet up to 40 percent of domestic demand. PVTex is planning to open three additional fiber mills in the future.
The Ministry of Industry and Trade, in collaboration with VINATEX and cotton enterprises, has implemented a cotton development program until 2015 with goals including boosting supplies of raw materials and gradually meeting domestic consumption demand. The government plans to invest in infrastructure and irrigation improvements to increase cotton-growing areas and yields to some 76,000 hectares and 60,000 metric tons, respectively, in 2020. VINATEX increased its cotton planting area by 15 percent in 2010, and is continuing the expansion this year.
Although the industry is experiencing increased costs, power shortages and administrative difficulties, perhaps one of the biggest issues facing Vietnam's textile and garment industry is a labor shortage — specifically, of skilled workers. New production technology being implemented requires higher skilled workers, which is causing labor costs to rise. In addition, in May 2011, Vietnam raised the minimum wage by almost 14 percent, and further salary increases are expected. Growing labor disputes and increasing wages may begin to affect Vietnam's appeal as a low-cost alternative to China.
As mentioned previously, Vietnam is among nine countries currently participating in negotiations to establish the TPP. Vietnam views the TPP as a way to make more room for its textile and garment producers; while in the United States, the Obama administration views it as a means to promote U.S. economic interests in the Asia-Pacific region, foster regional economic integration, and expand U.S. exports. Vietnam officially joined the TPP as an associate member in February 2009.
The TPP has evoked mixed reactions from various U.S. sectors. U.S. textile and apparel manufacturing interests oppose the inclusion of Vietnam in the TPP, mainly because Vietnam has a non-market economy — with a state-owned and subsidized textile sector — and an undervalued currency, relies heavily on exports for growth and has a rising trade surplus with the United States. There also are concerns about the strength of Vietnam's environmental regulations and intellectual property rights enforcement.
U.S. retail and importing interests approve Vietnam's inclusion in the pact, seeing significant market access opportunities. Vietnam has become an important supplier to the U.S. market: Because it is a low-wage country, many U.S. retailers have shifted or are considering shifting their production to Vietnam as an alternative to sourcing in China. There is also belief that including Vietnam in the agreement would help move the country away from a centrally planned economy to a market economy.
Goals For 2011 And Beyond
Vietnam is predicting favorable conditions for its garment and textiles sector this year, and has set a goal of becoming one of the top three garment and textile exporters globally.
The sector is expected to reach its 2011 target of more than US$13 billion in export revenues, resulting from a growing global market share, market advantages, large orders and a 15- to 20-percent product price increase. In the first half of 2011, Vietnam's garment exports had reached an estimated $6.16 billion — a 30-percent year-on-year increase and the highest growth rate in four years. During that period, exports to the EU increased 40 percent; to the United States, approximately 20 percent; and to Japan, 5 percent.
Sector goals for 2015 include: export turnover, US$18 billion to $21 billion; export revenues, US$14 billion to $16 billion; labor force, 3.5 million; fabric production, 1.5 million metric tons; fiber production, 500,000 metric tons; and localization, 60 percent. "To reach the export target of US$18 billion by 2015, the sector must record a growth rate of 20 to 30 percent next year," said Le Van Dao, vice chairman, VITAS, in a recent interview published by Voice of Vietnam (VOV) News. "This is a major target and will be an uphill task for the sector as it will compete with big rivals like China and other free markets."
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