The possibility of Vietnam Textile & Garment industry to advance next level

Vietnam could be at the same income level that Malaysia is today by 2035 if the government embraced a number of further structural and institutional reforms, The World Bank predicts

Vietnam could be at the same income level that Malaysia is today by 2035 if the government embraced several further structural and institutional reforms, The World Bank predicts.

The Washington based multi-lateral lender also forecasts that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the landmark 11-country deal signed on February 4, 2016, will lift Vietnam’s GDP by 10 percent by 2030, according to the East Asia Forum.

Besides, according to the prediction made by the government in Vietnam, the South-East Asian country’s textile and clothing industry will grow 10% per year on average from 2018 to 2025.

Both Bangladesh and Vietnam are competing for neck and neck in terms of winning the opportunities shifting from China. Many companies in China are looking to expand their operations by adding another location of manufacturing in Asia. Visit this website to know about a campaign of one uniform brand.

Bangladesh has more than 4500 garments and around 1500 textile factories while overall garment and textile factories in Vietnam stand at 6000. Bangladesh has earned popularity for its big capacity and ability to manufacture low-end items at the cheapest rate of the world with an acceptable quality whereas Vietnam is more value-oriented with a strong backward linkage and more educated skilled workforce.

Changed from a poverty-ridden country to a middle-income nation, Vietnam has come a long way. Beginning in 1986, Vietnam undertook key structural reforms in various areas, including state-owned enterprise (SOE) reform, private sector development, financial reform, public expenditure management and trade liberalization. The textile and apparel industry, the country’s largest industrial employer, got benefitted from the structural reforms. The industry specializes in the lowest value-added segment in the middle of the global supply chain.

Workers from rural areas are trained to be specialized in cutting, trimming and making (CMT model) garments. Downstream sectors, such as marketing and distribution, are underdeveloped and depend heavily on foreign companies. Although small in number, SOEs have been the main producers and act as the gateway for foreign companies to tap into Vietnam’s low-cost labor force.

A conglomerate of SOEs called Vinatex was formed in 1995 to foster improved technology, modern management and diversified businesses, including investment and finance. Vietnam is at a crossroads: it can either move to the next level of industrialization or incur the risk of losing competitiveness. In the T&G industry, foreign investment contributes to 60 percent of export revenue.

In 2019, the revenue Vietnam earned through the textile industry stood at USD 39 billion. By the ongoing year, the country has set a target of raising USD 50 billion from its textile and apparel industry. The textile industry started developing from the northern part of the country. Because of skilled and low-cost workers, most of the foreign companies started investing in the textile industry. Vietnam pays much less salary to its workers compared to the US, Japan and even China. The quality of Vietnamese products is very good at low-cost.

The government policy is very flexible, helps the industry to grow at its best and attract foreign and local investment. With the help of this industry, Vietnam could become economically one of the Asian Tigers.  Generally, the government policy allows duty-free imports of raw materials on the condition they are re-exported as clothing products within 90-120 days. The Vietnamese industry has shown the capacity to react quickly to new orders.

Vietnam is expected to be the major beneficiary of the Trans-Pacific Partnership (TPP). Being influenced by the TPP, Vietnam’s GDP will grow extensively. 

The development of non-traditional markets for Vietnamese clothing products also holds out promise. Vietnam’s joining the WTO in 2007 offered it a tremendous opportunity to develop. In the US markets, Vietnam is reaping the fruits of the CPTPP agreement of which Bangladesh is not part. The TPP trade pact has not influenced Bangladesh’s apparel export since Bangladesh’s apparel export to the US has not fallen. However, Vietnam apparel export is booming in the US market.

Barriers and ways to overcome them

Due to their size and weather, Vietnam does not grow a lot of cottons they use. Rather, they import it from China and the US.

The country has little capacity for fabrics manufacturing. Vietnamese garment manufacturers predominantly focus on the simplest cut-make-trim (CMT) model in which buyers control and own all the pre- and post-production processes. CMT production contributes over 60 percent of Vietnam’s total exports, while the more advanced business models (considered more profitable) like Original Equipment Manufacturer (OEM) and Original Design Manufacturer (ODM) account for the rest.

Chinese fabric manufacturers suspended production, disrupting fabrics supply to Vietnam when the coronavirus pandemic for the first time struck in the country in January this year. As the pandemic centre shifted west from China in March, many orders from the European Union and the United States were canceled, causing significant damage to Vietnam’s garment manufacturers.

About 70% of garment manufacturers reportedly started reducing shifts and rotating workers in March, with an additional 10 % following in April or May. Data from Vietnam’s Customs Agency suggests that imports and exports of all textile and garment products fell steeply in the first quarter of 2020.

Even though the Coronavirus pandemic has greatly impacted the industry, it provides some valuable lessons for the industry on recovery and shows them ways to move forward. First, it is necessary to establish a resilient supply chain of fabrics and other raw materials, which relies on the development of domestic fabric production.

Because a reliable supply of domestically produced fabrics will mitigate disruptions and help capitalize on Free Trade Agreements (FTAs) that impose rules of origin. For example, to enjoy preferential tariffs under the recently signed European Union–Vietnam FTA (EVFTA), Vietnamese garment manufacturers must satisfy the fabric-forward rule that requires the use of domestically produced fabrics (except fabrics imported from South Korea).

Second, it is important to diversify the demand base to reduce over-reliance on a few key customers. Vietnam should leverage FTAs, especially the newly-signed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), to explore new export markets.

This could also help drive industry growth. Manufacturers should also pay more attention to Vietnam’s promising domestic market and explore new product offerings. Domestic and international demand for antibacterial masks and protective gear has proven an effective and important relief measure during the Coronavirus-induced crisis.

Third, Vietnamese garment manufacturers should make the necessary investments to advance from the labor-intensive CMT model towards more capital-intensive models that allow for higher profit margins and more control and resilience to external shocks. OEM and ODM capable firms have proven to be more resilient and better equipped to quickly respond to the pandemic.

TNG, an OEM company based in Thai Nguyen, has stockpiled enough fabric for production until the second quarter of 2020. TNG has also arranged alternate sourcing from Pakistan and other domestic suppliers. This, together with agile management, enabled TNG to start producing antibacterial masks in just three days, helping the company record a 65 percent increase in revenue compared to 2019, despite cancelled overseas orders.

In 2019, more than 80% of Foreign Direct Investment (FDI) in the textile and garment industry shifted towards manufacturing fabrics and other raw materials. TAL, a Hong Kong-based company, was given a green signal to build a US$350 million-worth fabric plant in Thai Nguyen province in early 2019.

In February 2020, Texhong, another Hong Kong-based company, committed to providing another US$500 million (in addition to an existing US$500 million investment) to expand yarn and fabric production capacity in Quang Ninh province.

These FDI firms are expected to provide competition pressure and spill-over benefits that could stimulate innovation and growth of domestic and state-owned fabric producers. The government is also supporting Vietnam’s textile sector with the construction of dedicated textile industrial parks. Rang Dong Textile Industrial Park in Nam Dinh province, the largest of its kind, is expected to be operational from 2022.

Jason Q Nguyen, assistant professor of Operations and Supply Chain Management at the College of Business and Management at Vin University, and Quan V Le, associate professor of economics at the College of Business and Management at Vin University, believe that despite the economic shock of COVID-19, all signs are pointing in the right direction for Vietnam to take its place as one of the leading textile and garment exporting countries.

Inadequate domestically-made textile inputs

Although the textile and garment industry development strategy for 2010-2020 came into being many years back, the availability of domestically-made textile inputs remains a major problem. Jacky Roy, CEO of Signature Kollections Group – Vietnam, a knit and woven apparel manufacturer based in the UK and India, told the reporters that the “price of local cotton or polyester fabric compared to imported fabric is 40% higher, making it too costly to fully replace imports.”

Another Vietnam-based factory manager, who asked not to be named, says he feels the situation is getting from bad to worse, not better since demand is increasingly outpacing supply. Sources concerned said current production of cotton fiber, human resource development, and production of fabric for export, are all falling short of the targets set by the government.

VCOSA (Vietnam Cotton and Spinning Association) has recommended that the Vietnam textile industry increase domestic fabric production by attracting FDI (foreign direct investment), promote cooperation between foreign and domestic enterprises, and calls upon the government to pass regulations to allow and encourage investment in CO2 dyeing without waste.

All signs indicate that there will not be any short-term major increased production of fiber within Vietnam. According to experts, cotton production in Vietnam will face setbacks due to a drop in the international price of the clothing material.

They also said that additionally, other cash crops such as cassava, cashew, coffee and corn are vying for Vietnam farmland, and are more profitable than cotton.

Mark Donnelly, Country Head of HR company Michael Page Vietnam, points out that while the Vietnam textile and clothing sector will have to import talent from overseas in the short term, “it is imperative that textile companies work with universities to help establish courses to build the skills they need and develop a longer-term supply of talented professionals that can see the benefits of a career in the sector.”

Over-dependence on foreign trade

Vietnam’s economy is highly dependent on foreign trade. The United States and China are Vietnam’s largest export markets. Because of its heavy dependence on these markets, Vietnam may be hurt by the US-China trade war. Investors from Japan and other countries are increasingly looking for production locations rather than China.

This trend involves not only the shift of existing production sites but also the choice of location for new foreign direct investment (FDI), particularly export-oriented projects. Vietnam should take this opportunity to deepen and upgrade its industrial structure, according to Tran Van Tho who is currently a Professor of Economics at the School of Social Sciences, Waseda University.

TPP and Vietnam

Vietnam is expected to be the major beneficiary of the Trans-Pacific Partnership (TPP). Being influenced by the TPP, Vietnam’s GDP will grow extensively. Much of this growth is predicted to come from the T&G industry’s exports to the United States and Japan. Vietnam has a cost advantage in the labor-intensive garment segment and could exploit the preferential access to big markets granted by the TPP.

But Vietnam will need to develop further by supporting industries that are complementary to existing ones. In the case of the T&G industry, creating forward linkages requires the development of downstream sectors such as design, branding, marketing and distribution, including insurance and finance.

Creating backward linkages means investment in upstream capital-intensive sectors such as petrochemical and other sectors that have high research and development costs. Upgrading will require new business models. So where should Vietnam start? TPP’s rules of origin require all products in a garment, beginning at the yarn stage, to be sourced in TPP member nations to enjoy preferential access to member nations.

In anticipation of the TPP, Chinese, South Korean, Japanese and Taiwanese companies are investing in backward linkages in Vietnam. These capital intensive investments in textiles have a high fixed cost and reflect a longer-term commitment by foreign multinationals.

To benefit from technological spillover and achieve higher productivity Vietnam needs to get two seemingly contradictory areas in the industry right. The first is the provision of public goods by the government. The lack of adequate infrastructures — such as roads, ports and electricity — makes it costly to develop backward and forward linkages, which hampers industrial upgrading. Rectifying this will not only benefit the T&G sector.

Once linking different industries is less costly, Vietnamese entrepreneurs will invest in the necessary skills, technology and facilities to upgrade upstream and downstream industries. The second is to foster the necessary entrepreneurship by privatizing SOEs and reforming corporate governance.

Managers in SOEs lack commercial incentives and enjoy economic rents accruing from preferential access to land and capital. Rent-seeking must be replaced.

The government should move to incentivize efficient business operations. To achieve inclusive and sustainable growth, competitive markets must determine the allocation of land and capital to the private sector. The government must develop a scheme to support SMEs in obtaining finance, facilitating joint ventures with foreign multinationals and utilizing free trade agreements.

These are areas traditionally dominated by SOEs and freeing them up for private firms will entail battling vested interests. But the reward will be a more innovative and inclusive textile and garment industry, and a sustainable path for growth in Vietnam into the future, according to senior research fellow at the Centre on Asia and Globalisation Tomoo Kikuchi and MBA student of Vietnam National University Huong Vo.


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Fashion retail stores cancelling orders have caused decline of global clothes production by 3%

In the year, global clothes production with cancelled events has declined by 3 per cent forcing retail fashion stores to cancel their manufacturers’ orders. Ayesha Barenblat, founder of Remake, a nonprofit organization which promotes the rights of manufacturers in fashion, says that over 40 billion dollars of goods were dumped into landfills. Bangladesh fashion sweater manufacturers got orders last June 40% less than last year.

This affects those who have been making these garments for hours because they are left unpayed. In developing countries, most of these workers are living, there are not many work paths. Those large firms make the mistake of relying on cheap fast fashion, but the clothing worker pays the price.

Not only this but, according to Ethical Mode Activist Clare Press, owner of the Wardrobe Crisis podcast, human rights in many of these factories are not upheld by working conditions. This issue has hit women of color the hardest. But the resounding problem of these major corporations has finally reached the ears. In March this year, a petition from Remake Lead for fashion companies to pay their workers collected over 200 000 signatures. 18 global brands, such as Zara and H&M, have joined the movement. The efforts are now being made to resume local production, as the regulation in Australia provides for fair wages and fair treatment for workers. Maybe this frontier could be a possibility now that these companies act.


Global clothes production has declined by 3 % forcing retail fashion stores to cancel their manufacturers’ orders

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Now Kohl’s Should See Their Suppliers

Korean material and attire industry has unequivocally encouraged US retail establishment retail bind Kohl’s to rethink its ongoing choice to drop orders and not utilize “power majeure conditions” in the agreements with its flexibly chain merchant accomplices. It has requested that Kohl’s purpose the issue emerging out of crossing out of requests agreeably with its gracefully chains. Gap Inc has already declared to make payments to its suppliers. Read this news for finding their hoodie manufacturers in Bangladesh.

Perceiving the staggering effect COVID-19 pandemic is having on the worldwide material industry, Kihak Sung, executive of the Korea Federation of Textile Industries (KOFOTI), stated: “It positively has been very testing occasions for all partners associated with this extraordinary emergency.”

European brand casual garments manufacturers are mostly from Bangladesh. Kohl’s is one of the brand who cancelled many orders.

Bangladesh is now expert source of ladies casual wear supplier.

“We have as of late got mindful of Kohl’s one-sided choice to drop arranges as of now created and underway without earlier meeting, which has made a phenomenal disturbance the flexibly chain and put in danger the employments of about 200,000 specialists at processing plants all through the creating nations of Vietnam, Indonesia, Philippines, Guatemala, Nicaragua and Haiti,” Sung said in a KOFOTI public statement.

“These request retractions and installment term augmentations are putting these production lines in danger of closing down tasks and send laborers home uncertainly,” Sung included.

In addition, the human torment and financial harms are likewise being felt at numerous texture plants in Korea providing textures to these abroad manufacturing plants, Sung stated, and included that it is important that some different US retailers are mentioning installment term augmentations and even dropped orders now and again, however not without obligation.

“For the benefit of the Korean material and clothing industry, we emphatically ask Kohl’s to reexamine the ongoing choice to drop orders and not utilize “power majeure conditions” in the agreements with their gracefully chain seller accomplices. Kohl’s ought not betray the good and social obligations it has towards these laborers in the gracefully chain,” Sung said.

It must be underscored that significant brands and retailers like H&M, Zara and Primark have as of late made responsibilities to pay material specialists in creating nations after extreme investigation from the media.

“We are approaching Kohl’s to determine this issue genially with its gracefully chains including sewing plants, texture factories and trim providers. Presently like never before, all partners in the flexibly chain must coordinate all the more intently and search for innovative answers for endure this emergency together,” KOFOTI administrator said.

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Italian fashion industry ready for revival

The coronavirus pandemic has attacked the Italian scene; the cost for human life has been pulverizing, and the injury can’t just leave. Italy is home to endless style brands; it additionally has a history—of over and over ascending from the remnants. The lockdown there has not been lifted at this point, and the quantity of setbacks is still not on a decay. However, the design business is resolved to bob back more grounded. Customers are looking for cheap adult wear manufacturers outside China.

The pandemic incapacitated the style business across parts and topographies. In spite of the fact that it is too soon to measure the misfortunes, Gianfranco Di Natale, general chief of Sistema Moda Italia (SMI), the industry exchange bunch speaking to Italy’s materials and attire firms, calls attention to, “The Italian creation framework, specifically materials and dress, verifiably lays on mechanical locale, which are profoundly particular focuses all through the Italian region.” According to him, every one of these regions would be seriously influenced and specifically the urban communities of Biella, Como, Varese, Prato and Bergamo. Factories for ITALIAN fashion brands are also reopening to start production.

The entire footwear flexibly affix needed to close down, thus the whole nation has been influenced by the stoppage. COVIC 19 protection uniform is now popular there now. “Not at all like different organizations in the materials division who were conceded an exception so as to change over a portion of their creation lines, we have been at an absolute stop,” laments Siro Badon, leader of Assocalzaturifici, the national affiliation speaking to modern shoemakers in Italy. After this pandemic clients will look for more organic, recycled fabric mill to manufacturer their fashion clothes.

The style area could be among the first to be re-opened after the lockdown closures, and it won’t be a simple assignment. It would require coordination, and it would require an all around spread out guide.

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The Netherlands Minister confirms Bangladesh not to cancel apparel orders

The Netherlands has assured Bangladesh that the Dutch buyers will not cancel or suspend their orders from the Bangladeshi readymade garment (RMG) factories.

Minister for Foreign Trade and Development Cooperation Sigrid Kaag conveyed it to Foreign Minister AK Abdul Momen and mentioned that the Dutch government would ensure that the RMG value chain would not be disrupted, reports UNB.

Kaag called Momen on Wednesday to talk about the impact of coronavirus, and to discuss way forward.

In the telephone meeting, Momen raised the issue of cancellation of orders by different European brands and buyers, and pointed out that $3.18 billion worth of orders have already been cancelled or suspended by international buyers, affecting 1,150 factories and 2.28 million workers.

He urged the Netherlands to ensure that buyers and brands from the country do not cancel their orders with RMG factories in Bangladesh.

The challenges arising because of COVID-19 pandemic, and the way forward was discussed in details during the telephone call between the two Ministers. Minister is also interested for dealing Bangladeshi CE certified PPE and medical uniforms.

Minister Sigrid Kaag informed that the Dutch Government has set up a fund of 100 million Euros to help countries that need support because of COVID-19 pandemic.

She informed that countries that are interested to use the fund would need to request for allocation.

On Rohingya crisis, Foreign Minister Momen explained to Minister Kaag that the around 500 Rohingyas who are on two boats are not in or even near the Bangladesh maritime border.

He pointed out that according to the law of the seas, other countries in the region have responsibilities to save the Rohingyas.

Dutch Minister agreed that if Bangladesh continues to rescue boat loads of Rohingyas again and again then it may work as a decoy for Myanmar and encourage them to push more Rohingya to the deep sea.

Foreign Minister Momen thanked the Dutch government for supporting the cause of the Rohingyas, and for supporting them during the trial at the International Court of Justice.

Minister Kaag assured Dr Momen that her country would continue to strongly support the Rohingyas in their journey for justice and accountability.

Foreign Minister Momen thanked Minister Kaag for the Dutch support to Bangladesh on developing the Bangladesh Delta Plan 2100, and sought continued support, which was assured by the Dutch Minister.

On the issue of FDI, Bangladesh Foreign Minister mentioned that FDI would be negatively affected by the COVID19 pandemic, and requested for Dutch technical assistance in FDI in the areas of agriculture and fisheries.

Minister Kaag responded positively to the request, and mentioned that the Netherlands would be ready to support Bangladesh in this regard.

The ministers also talked about support in the area of addressing the challenge of river erosion in Bangladesh.

Dr Momen also raised the issue of impact of COVID-19 in Middle East, where 11.2 million Bangladeshi expatriate workers have lost their jobs.

He also pointed out the importance that their remittance plays in the economy of Bangladesh.

Dr Momen informed the Dutch Minister that Bangladesh had approached the governments of Middle East with two specific requests: to ensure that the Bangladeshis, including those who have lost their jobs, do not starve; and to ensure 6 months’ salaries for the Bangladeshi workers who had been terminated.

Dr Momen requested support of Dutch government in convincing the Middle Eastern governments on these two issues.

Minister Sigrid Kaag replied that she would talk to Dutch ambassadors in that region.

In the telephone meeting that lasted close to half an hour, both Ministers agreed to work together on issues of common and global interest.

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