indutry overview

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VIETNAMS GARMENT INDUSTRY OVERVIEW

I. THE NUMBER

Over the last many years, Vietnam textile and garment (T&G) industry has

witnessed strong development. The annual average capacity of the garment alone was

2,000 million pieces in 2008 and increased to 2,400 million pieces in 2009. Products

made in Vietnam have penetrated to the world market, thus it is contributing to the

economic development of the country. The export values have increased rapidly and

the sector is one of the industries that for many consecutive years has ranked very

high with respect to the countrys key export product. In the world market, Vietnam

T&G has been enhanced its position. In 2006, Vietnam T&G sector was ranked at

16th position with export turnover valued US$ 5.2 billion; yet by the end of Oct 2007,

the sector increased and occupied the 10th position. In present, Vietnam has ranked

fifth among the worlds major T&G exporters.

In spite of the world crisis from 2007-2009, Vietnams garment sector stood

firm. While the global T&G industry dropped out by 12-15%, Vietnam still

maintained its export turnover and increased its share in the three markets (the US,

the EU, and Japan). Since 2009, the T&G sector has taken the lead in Vietnams key

export industries, but still constituted a very small proportion of the world total T&G

export turnovers, at about 2.69% in 2008 and decreased to 1.6% in 2009. In 2009,

Vietnams garment products made up only 5.8% of the USs total garment import

values of US$ 86.7 billion (Source: www.trademap.org). This fact implied a large

market for garment products and potential opportunities of further development for

Vietnams garment industry.

The US has remained as the most important partner of Vietnams garment

industry for many years. The export values to this market has accounted to more than

50% of Vietnams total garment export, followed by the EU (18%) and Japan (11%),

South Korea (3%), and ASEAN member countries (2%). Of the three major markets,

the sector attained the highest growth rate in the US market (19% per year in
http://www.trademap.org/http://www.trademap.org/


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average). The corresponding figures in the EU and Japan were 17% and 12%

respectively. Figure 1 illustrates Vietnams garment exports to these markets from

2005 to the first 5 months of 2010.

Figure 1. Vietnams garment exports to the EU, the US, and Japan from 2005-

2009 and the beginning 5 months of 2010 (Unit: US$ mil.)

Source: Vietnam Customs

In 2010, the sector earned an export turnover of more than US$11.2 billion.

Vietnam became the 2nd and 7th largest garment suppliers for the US and the EU

markets respectively. Refer to Table 1 and Table 2 to see Vietnams T&G export by

market and by categories in 2010.

Market2010

(USD)

Change to 2009

(%)

Dec/2010

(USD)

Change to

Nov/2010

(USD)

Change to

Dec/2009

(%)

USA

6,117,914,84722.48

591,648,930

23.85 20.65

EU

1,883,486,83117.50

239,990,884

32.95 50.76

Japan 1,154,491,648 21.01 120,088,749 -4.79 25.22

Korea

431,633,58178.00

51,560,362

2.97 145.87

ASEAN

242,535,34323.13

25,848,869

9.62 44.96

Canada

217,032,78621.55

21,383,982

23.11 35.45


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Taiwan

181,468,817-15.83

17,342,027

0.20 6.10

China

93,551,932102.68

11,695,767

-10.76 128.86

Turkey

87,031,576

51.46

11,079,583

30.82 102.59

Russia

76,063,10535.72

9,551,123

56.42 50.17

Hong Kong

49,080,76440.91

5,985,809

22.34 84.79

UAE

44,125,14926.20

5,529,337

19.62 39.18

Australia

43,977,33342.56

4,867,728

12.84 75.57

Mexico

64,943,70921.80

5,637,599

35.28 62.32

India 21,473,167 52.34 475,621 -83.05 31.12

South Africa

18,419,67379.86

1,852,272

-29.04 21.85

Arab Saudi

29,850,981-1.06

2,054,582

-17.29 -8.48

Brazil

18,760,38367.46

2,633,751

9.10 18.57

Panama

14,152,88839.80

1,946,281

37.51 127.51

Ukraine

15,331,75923.71

2,861,180

131.12 196.98

Switzerland

2,373,830-76.81

989,903

3.63 50.80

Norway

10,574,65949.36

1,996,023

156.40 193.30

Cuba924,725

-91.28318,205

102.24

Table 1. Vietnams T&G export by market in 2010

Source: www.vietnamtextile.org

Cat.Jan - Nov

/2010

(USD)

Change 2009

(%)

Nov/2010

(USD)

ChangeOct/2010

(%)

ChangeNov/2009

(%)

T-Polo shirts

2,083,084,33517.53

202,525,452

-1.28 30.44

Shirts

552,976,94716.88

54,611,000

6.40 37.85


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Trousers

1,551,770,00516.85

147,057,841

-5.76 38.06

Shorts

315,278,7337.26

23,625,668

90.05 5.36

Jackets

1,837,588,796

20.89

181,502,155

-16.00 52.98

Skirts

445,196,68021.40

42,513,353

41.48 39.38

Underwear

378,652,44233.80

41,059,623

0.64 56.81

Swimmingwear

75,313,304

32.71

9,996,8630.06 -0.10

Sport wear

94,071,3910.49

7,586,284

-1.69 -25.27

Sleep wear

101,461,5321.22

9,807,970

-22.97 17.80

Children wear 403,954,114 30.95 34,692,143 -19.94 23.37

Fabric

541,052,37639.52

62,277,074

14.26

Table 2. Vietnam's Textile and Garment Export by Categories

in January - November 2010


Right from the beginning months of 2011, the sector has seen positive signs.

Specifically, garment exports increased by 27.9% to US$2.8 billion in the 1st quarter

of 2011 compared to the same period last year. Many businesses have signed

contracts for the 3rd quarter of this year. It is possible for Vietnam to expect to export

over US$13 billion of garments in 2011. This was resulted from Vietnams

traditional competitiveness such as relatively inexpensive labour cost. Besides,

established partners have recently agreed to a price increase of between 15-20%.

Domestic suppliers, therefore, still received large orders from foreign importers.

Regarding the three main market, the Vietnam Textile and Apparel Association

(VITAS) estimated that Vietnamese garment share in the US would increase 4.6 -

5.1% in 2011. Vietnamese faced a lot of challenges in the EU (sovereign debt crisis),

yet they still experienced an 18% growth in export value from last year to US$

1.8billion. It is estimated that Vietnamese T&G sector will have many development

opportunities in this market in the few next years. In terms of Japanese market,


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Vietnamese businesses have not received any unfavorable signals from Japanese

importers/exporters. Some garment products as shirts, jackets, vestons, trousers, etc.

still remained the performance. Especially, after the earthquake and tsunami, Japans

demand for Vietnams protective clothing has surged. Therefore, Vietnamesebusinesses can adjust the orders exported to this market if there are some negative

impacts in the future as a result of natural disaster.

II. INDUSTRY ISSUES AND TRENDS

1. The current situation of the industry

Vietnamese garment industry has been witnessing the scale expansion of manygarment enterprises. Whereas the supplier base does not have any significant

changes, existing garment businesses have been carried out many new projects to

build new plants so that they can control more phases in the production process.

2. Challenges and responses

2.1. Challenges

- Labour shortage is the biggest issue facing the garment sector. Each business

lacked around 18% of the total workforce, especially after the traditional Lunar New

Year Festival (Tet). The reason is that the salary for workers in the garment sector is

quite low compared to other industries. In addition, the proportion of skilled,

experienced labour is low.

- Increases in interest rates and surging price of many raw materials pushed

production costs up by 15-20%. For example, the price of cotton imported from the

US had increased by 74.1% in comparison with the same period last year. The cotton

fiber price from domestic sources has increased by 50-60%. - The costs of labour,

transportation and power have also gone up. This is a part of the world common price


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increase in garment raw materials and a consequence of recent high inflation in

Vietnam in particular.

- As the domestic materials cannot meet production demand in terms of either

quantity or quality, the heavy reliance on imported materials leads to low profitmargins compared to total export values (Table 3). The design industry for the

garment sector is till underdeveloped, so the majority of the garment production for

exports in Vietnam is under a contractual agreement (doing outsourcing tasks for

foreign partners). In other words, garment production under this agreement involves

only the labor intensive assembly processes of cutting, sewing (making), and

trimming while input materials including textile and accessories as well as designs

are provided by buyers. This high import intensity of production is due to the

relatively weak domestic textile and accessory industry, which are perceived by

buyers as weak particularly in terms of quality, price and timely delivery.

- Massive investment of foreign companies in the garment sector has created a lot of

challenges for local suppliers, especially a shortage of labour when FDI companies

are increasingly competitive in attracting labour.

- Tough competition from other countries such as China, India, and Bangladesh.

No. Category 2007 2008 2009 2010 E Q1/11Change

Q1/10

1 Export 7,780 9,130 9,070 11,210 2795 27.9%

2 Import 6,356 7,064 6,692 8,912 2553.1 49.3%

Cotton 268 468 392 664 338.5 126.6%

Fibre/yarn 744 788 811 1,164 403.6 70.9%

Fabric 3980 4454 4226 5,378 1410 42.0%

Accessories 1364 1354 1263 1706 401 21.1%

3 Import to Export 4,844 5,317 4,826 6,562 1820.386 61.3%

4 Balance Ex - Im (1-3) 2,936 3,813 4,244 4,648 974.6136 -7.8%

5 Value added Rate (4/1) 37.7% 41.8% 46.8% 41.5% 34.9

Table 3. Vietnams T&G industry export-import until Q1/2011



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2.2. Responses

- Stabilize the workforce and improve their skills

- Recruit labour in remote areas

- Apply advanced technologies to increase productivity and sharpen competitive

edge.

- The Ministry of Industry and Trade has passed a development plan until 2015 and a

program for training human resources for the industry.

- Material importers have negotiated reduced prices, helping domestic producers

overcome difficulties.

- Many businesses decide to obtain growth in-depth rather than focus on quality by

investing in supporting industries like materials processing, textiles and dying to

switch from subcontracting for foreign partners to selling products of their own

designs. For example, Nha Be Garment Corporation has been initiating a series of

projects to expand production that may cost thousands of billions of dong. Of the

new projects, two are especially notable: the expansion of An Nhon Garment

Company in Binh Dinh Province, which specializes in making suits for women,

sportswear, and the extension of Tam Quan Garment Company, which specializes inmaking trousers, jackets and shirts. These two alone have investment capital of over

200 billion dong.

- To promote exports in 2011, the Vietnamese garment and textile sector has outlined

key tasks to obtain stable growth in 2011-2015 such as maintaining existing clients

and continuing assisting businesses to seek markets for high added value products.

Apart from taking advantage of trade agreements, Vietnamese garment and textile

businesses will continue expand exports to other potential countries in Asia andAfrica. In addition, to guarantee business efficiency, businesses should enter into

long-term contracts related to production capacity and establish prices for each

quarter as opposed to permanent prices, in order to avoid losses caused by unstable

market prices. Apart from developing export markets, garment and textile businesses


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should attach importance to the domestic market, make concrete strategies for

expanding domestic market, branding and establishing distributionchains to promote

domestic consumption.

- The industry has made best effort to increase the localization rate as a way todecrease the dependence on imported sources of materials and world material price

fluctuation. In accordance with the garment and textile development plan in 2010-

2015, the industry will meet about 45% of the domestic fibre demand in 2011, and

this figure will increase to 70% in 2020. In 2015, the localization rate is expected to

be 70-80% (See Table 3).

Strategies 2010 2015 2020

Turnover 13 - 15 bil. USD 18 - 21 bil. USD 27 - 30 bil. USD

Export Revenue 10 - 12 bil. USD 14 - 16 bil. USD 20 - 22 bil. USD

Labour 2.5 mil 3.5 mil 4.5 mil

Fabric Production1000 thousandtons

1500 thousandtons

2000 thousandtons

Fiber Production 350 thousand tons 500 thousand tons 650 thousand tons

Localization 50% 60% 70%

Table 4. Strategies of Vietnam Textile & Garment from 2015 to 2020


3. Major trends

As mentioned before, one of the main trends in Vietnameses garment sector

is businesses scale expansion and in-depth investment in an effort to switch from

subcontracting to undertaking various phases of the production process for

international orders by 2015. This trend is mainly adopted by large companies due to

the requirement of initial huge investment. Vietnam Textile and Garment Group

(Vinatex) Vietnams garment market leader, is a typical example of following this


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trend. The group will particularly focus on investment strategies, namely building

important plants, especially in terms of textile production and dying; developing

plans of cotton production; investing in machinery and technology, moving plants to

remote areas to stabilize workforce and create employment opportunities for locallabour; investing in ecologic inspection department to inspect both the input and

output of garment products, putting plants with the core investment in high added-

value products into operation. The group intends to produce high-end veston products

with the introduction of four new factories.

III. INDUSTRY COMPOSITION

1. An overview of supplier database

By 2009, the number of garment enterprises was 3,719 with the classification

by capital and geographic location as indicated in the Table 4. More than 70% were

small and midsize enterprises with the workforce of under 300. The enterprises with

the workforce of 300-1000 accounted for about 20% and only 6% of garment

enterprises had the workforce of more than 1000 people.

Vietnams garment sector was a highly export-oriented industry and had a

dual structure depending on the market orientation - domestic or foreign. Suppliers

for the global markets were enterprises including SOEs, joint ventures, private

enterprises and foreign firms. These were typically large enterprises in terms of

number of workers and capital endowments. The domestic garment market, on the

other hand, was catered primarily by smaller private firms, of which a significant

proportion operated in the informal economy (Goto 2005). The suppliers in the

export oriented industry were also much more advanced in terms of production

processes, accessed to formal financial resources and to foreign markets1.

1 Textile & Garment industry in Vietnam: Research on Garment Producers in Vietnam (InternationalBusiness Research Vietnam 2008).


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The focus of the sector was classified to be on massive quantities of low to

mid-level quality. These massive quantities were needed because the main reason for

customers to go to Vietnam for production of garment was its low prices, which had

the interest of huge corporations mostly from the USA. There was a little market forthe production of small, fashionable orders. This situation may be improved in the

future when large firms perform their in-depth investment strategies2.

2. Industry leaders

The industry leader is Vinatex - a complex that is owned by companies

including Vietnam Textile Garment Group (the mother company), the centers for

research and training, and nearly 120 sub-companies. These sub-companies are joint

stock companies that do business in different fields, e.g., produce textile garments

and run commercial services. They also have their distribution systems including

wholesale and retail dealers. They invest in finance and in supporting main garment

textile production. Vinatex is one of the largest and the most competitive textile

garment corporations in Asia.

Top 20 largest T&G enterprises in Vietnam are presented in Table 5. As seen

from the table, nearly one half of these companies are foreign-based companies, allof which are from South Korea and Taiwan. Vietnams garment industry has recently

attracted more and more foreign investment, mostly from Hong Kong, Taiwan, Korea

companies. Cheap labor and high skills were the two main temptations that led

foreign firms to choose Vietnam as a new place to do business. Although they were

warned that Vietnamese labor market wasnt as cheap as it had been the past, a

market with the capacity to succeed in the clothing industry like Vietnam still

attracted them like months to a flame. 18 FDI garment industry projects, worthUS$20 million, were licensed in the first four months of 2008. Vietnams clothing

exports to these markets have increased as most investors are also traders or

2 Textile & Garment industry in Vietnam: Research on Garment Producers in Vietnam (InternationalBusiness Research Vietnam 2008).


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importers. Vietnams garment export turnover in the first two months of 2011 was

US$ 1.8 billion with the export turnover of FDI companies accounting for about

63.2% (US$ 1.4 billion).

Table 4. Classification of Vietnams garment enterprises



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No. G1000Ranking

Company Location note

1 21 VIETNAM NATIONAL TEXTILE & GARMENT GROUP - VINATEX Hanoi

2 92 HUNG NGHIEP FORMOSA COMPANY LIMITED Dong Nai

3 151 HANSOLL VINA COMPANY LIMITED Binh Duong foreign company

4 192 HANSAE VIETNAM COMPANY LIMITED HCMC foreign company

5 196 PHONG PHU JOINT STOCK CORPORATION HCMC

6 253 TAINAN SPINNING COMPANY LIMITED Dong Nai foreign company

7 317 10/10 TEXTILE JOINT STOCK COMPANY Hanoi

8 326 GIA DINH TEXTILE & GARMENT CORPORATION HCMC

9 374 HA NOI GENERAL PRODUCTION & IMPORT- EXPORT COMPANY Hanoi10 389 HUNG LONG GARMAY & SERVICE JOINT STOCK COMPANY Hai Phong

11 392 ALL SUPER VIETNAM COMPANY LIMITED Dong Nai Foreign company

12 413 INTERNATIONAL CHUTEX COMPANY LIMITED Binh Duong Foreign company

13 441 NAMYANG INTERNATIONAL VIETNAM COMPANY LIMITED Dong Nai Foreign company

14 467 NHA BE GARMENT JOINT STOCK CORPORATION HCMC

15 489 VIET TIEN GARMENT JOINT STOCK CORPORATION HCMC

16 493 HA NOI TEXTILE & GARMENT CORPORATION Hanoi

17 499 SONG HONG GARMENT JOINT STOCK COMPANY Nam Dinh

18 511 SHINWON EBENEZER VIETNAM COMPANY LIMITED Vinh Phuc Foreign company

19 515 NOBLAND VIETNAM COMPANY LIMITED HCMC Foreign company

20 517 EINS VINA COMPANY LIMITED Binh Duong Foreign company

Table 5. Top 20 largest T&G enterprises in Vietnam
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IV. PRODUCTION HUBS

Production activity of Vietnam textile namely focuses on two key economic

areas of the country, the Northern Delta and the Sothern Delta. Over 80% of

production capacity is located in the Southern Economic Area, primarily in Dong

Nai, Binh Duong, Long An and Ho Chi Minh City.

Major reason for this distribution of production activity at these two main

regions is that infrastructure there is much better than other regions: near sea port,

convenient traffic, abundant and skilled labor force. There are many foreign-invested

enterprises operating there with their factories because of advantages of

competitiveness and policies of investment and production encouragement.

indutry overview

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