Vietnam's Garment & Textile Industry: Inevitable Competition

The garment and textile industry is now one of the largest forex earners of Vietnam. In 2006, this industry generated export value of US$6 billion, only second to crude oil export. The garment and textile industry is a labour-intensive sector. About two million people are working for the garment and textile industry.

 

However, this sector still has several weak points. Most input materials and accessories are imported from other countries. Creativity in designs and models is limited. To date, Vietnam lacks famous fashion brand names. In addition, the competition of garment and textile companies is still weak.

 

In fact, Vietnam holds great potential to expand production and export, supported by an abundant workforce. The garment and textile industry has put forth several new development orientations. One of the measures is to restructure the production mode, bringing outsourcing and production of low-value items to rural areas to make full use of idle labourers. In major urban cities, garment and textile companies will upgrade factories into production bases and centres turning out high-value, quality, and fashion items to sharpen their competitiveness and increase the added value for the garment and textile industry.

First of all, associations and enterprises must seek measures boosting production of material and accessories. This is not a new objective, but one which the garment and textile industry has carried out for more than 10 years. In 2001, the Prime Minister approved a strategy to speed up the production of materials for the garment and textile industry, and the Ministry of Industry strictly supervised the implementation of this strategy. However, the industry’s efforts were only able to moderately improve fibre spinning, not textile, dyeing or environment treatment. The Ministry of Industry recently assigned the Vietnam Textile and Apparel Association (Vitas) to a project producing one billion square metres of material in the next five years.

 

Besides, with the policy of diversifying resources, the garment and textile industry is associating related enterprises in the country and speeding up equitisation to raise funds for development.

 

Especially, the Prime Minister and the Ministry of Industry are calling foreign investment for the garment and textile industry. Foreign investors can join hands with Vietnamese companies or acquire stakes in those companies. In my opinion, the opening of the market to foreign capital flows, both direct and indirect, is very important.

 

We are not actually good at production, branding and management, issues the garment and textile industry has been unable to resolve in a short period of time. By cooperating with foreign partners or selling stakes to them, the industry can approach modern technological sources to improve management capacity and competitiveness. Foreign investment capital will also lessen the burden of investment for infrastructure on the garment and textile sector. Especially, foreign investment enables us to resolve our hardest problem, that is, materials. Only after guaranteeing a stable supply of materials, can we handle other activities like design, fashion and a distribution system.

 

At present, the open policy of Vietnam induces the penetration of more and more foreign investors. Particularly, the US-based International Textile Group (ITG) has joined hands with Phong Phu Corp. to build a US$80-million textile and dyeing complex in Da Nang City, and South Korea’s Teachang Group has cooperated with Vietnam Textile and Garment Group (Vinatex) to carry out a US$40 million investment project. Many investors from Taiwan, South Korea and China are waiting for approval to make cloth in Vietnam.

 

Foreign investment capital attraction is suitable and competition is inevitable. If Vietnamese companies fail to compete with foreign rivals, they are bound to lose. If they can overcome difficulties and grow, they can negotiate to acquire foreign-built facilities. Acquisition is much easier than the way we build ourselves. In addition to investment policies, the Government and relevant ministries are also introducing policies to speed up equitisation. This policy fosters development of equitised garment and textile firms. Equitisation will create clarity in management, improve the self-control of other companies, limit losses and mobilise funds for development.

 

Under the equitisation roadmap, Vinatex has 60 member companies, of which 50 affiliates have gone public. This year, three giant corporations, Phong Phu Textile, Viet Tien Garment and Hanoi Garment, will go public. Under the plan, Vinatex will be equitised in 2008, aiming to become a world-leading multi-ownership group.

 

In general, the equitisation of 50 garment and textile companies was successful. Companies which were operating at a loss have made profit after equitisation. The sizes of equitised companies are enlarged in production facilities, revenue and workforce. Listed companies have already doubled their chartered investment capital. Obviously, this is initial success for equitised companies in the country in general, and in the garment and textile industry in particular.

 

At present, the Ministry of Industry and the Ministry of Trade are instructing companies in Vietnam to carry out three immediate important tasks. The first is to be active in preventing any lawsuit. The second is to prevent trade fraud and smuggled goods, especially from China. And the third is to be against state subsidies for state-owned companies.

 

Regarding antidumping, if it is sued Vietnam will be put into a “force majeure” situation and lose its orders, as Taiwan previously lost its sweater market. Vietnam has learned precious lessons from the catfish, leather-capped shoes and bicycle cases. In late April, a delegation of the US consultation group will arrive in Vietnam to examine production conditions for traits of antidumping. The Ministry of Industry has instructed Vitas to receive and take the US delegation to several Vietnamese garment and textile companies. The most important thing is to avoid lawsuit threats in any case, even technical barriers or environment barriers.

 

On February 28, the Ministry of Industry and the Ministry of Trade issued a joint circular on an export supervision mechanism for garment and textile products to prevent US complaints.

 

Recently, the Vietnamese Prime Minister Nguyen Tan Dung sent a letter to US President Bush, informing him that the US intention of applying a supervision mechanism on Vietnamese exported garments and textiles is against international practice and the principles of the World Trade Organisation (WTO). Prime Minister Dung asked President Bush to intervene, before establishing tribunals or hiring lawyers.