Vietnam’s textile and other developments
By Virginia F. Bodmer-Altura
Since 1986 Vietnam’s economy is annually growing 5.3 % per capita, by exemption of China, and faster than any other Asian economy. According to McKinsey international consultancy the success was earmarked by an internal program of restructuring and a transition from agricultural base towards manufacturing and services and additionally propelled by a youthful population. Textile and clothing has an important role in manufacturing and exports.
Basic information
According to the findings of McKinsey Global Institute (MGI) the steadily expanding labour pool and the structural shift away from agriculture contributed two thirds of Vietnam’s 7% annual GDP Gross Domestic Growth from 2005 to 2010 and the other third was attributable to sectors productivity. However the labour growth is declining to around 0.6 % annually in the actual decade, this means down from 2.8 % growth rate during 2000 – 2010. Under this aspect it becomes mandatory to raise productivity and in February of 2012 the Ministry of Industry demanded higher rates of productivity also from textile and clothing manufacturers. MGI has calculated that the manufacturing industries in Vietnam should increase their labour productivity by some 50 % translating to 6.4 % annually if the economy is to meet the government’s target of 7 – 8 % annual growth of GDP by 2020 (GDP would reach USD 46 billion). If this increased rate of productivity is not achieved, Vietnam’s annual GDP will be 30 percent lower (annual growth only 4.5 to 5.0 %) than the set growth rate of seven percent. If no shift in the structure of the economy is achieved at a steady level, then MGI estimates that private consumption would be USD 31 billion lower and the economy would take 14 rather than 10 years to double in size. Domestically oriented companies would be more affected by the slower growth of economy than export oriented firms.
The role of multinational companies
Many multinationals have established already or planning to open facilities in Vietnam to protect their exposure to China but without adequately assessing the prospects for expanding business in Vietnam itself. These plants might cause overcapacities and also those have to improve productivity that is why in-house training is viable (a government certification of such training courses would be helpful). In the future, surveys suggest that Vietnam has a higher shortage of qualified engineers and middle managers than other rapidly developing economies. Table 1 shows graphically the interrelationship between performance and productivity growth.
Pressures and challenges
Vietnam has to cope also with uncertain global environment and its economy faces a state of higher risk because of macroeconomic pressures, including inflation that has been building up as a by-product to push a robust growth and despite global economic crises. Some companies already report labour shortages in major cities and by 2020 the share of the population aged 5 to 19 is projected to drop to 22 % (27 % in 2010 and 34 % in 1999). The median age is 27.4 years as compared to China with 35.2 years.
The need to a transition to more productive activities, new sources of comparative advantage must be found. It has to be taken into consideration by the government and Vietnam has already invested significantly into infrastructure, but funding of such projects in the future will be probably limited. And another challenge ahead is to establish and enable the level of individual industries and sectors by enhancing domestic competition and helping industries to upgrade within the value chain. Further reforms are needed regarding ownership and management incentives of state owned enterprises in order to improve productivity and growth. Vietnam has already established a State Capital Investment Corporation (SCIC) to enhance the reform of these companies and to help the economy.
To forge trade relations is of importance
Vietnam has also to forge trade relations. On a very promising way are trade agreements initiated to achieve a FTA Free Trade Agreement with the EU, because the country is one of the 10 members of ASEAN countries and those form the largest EU trading partners outside Europe with an annual bilateral trade in goods and services of around EUR 175 billion. In 2011 EU-Vietnam trade in goods amounted to EUR 18 billion with almost EUR 13 billion for Vietnamese exports to the EU and resulting in a trade plus for the Asian country of EUR 7.6 billion. The key Vietnamese export items were footwear, textiles and clothing, coffee, seafood, leather furniture and in turn the EU provided Vietnam with high tech products such as electrical machinery and equipment, aircraft, vehicles, pharmaceuticals and iron and steel.
Vietnam is the fifth largest trading partner within ASEAN and 35th out of EU’s total trade and the EU is Vietnam’s third largest trading partner after China and USA. The EU is also one of the largest investors (FDI) in Vietnam (around 1767 million or more than 12 % of Vietnam’s total in 2011).
Vietnam’s exports in 2005 – 2010 and in comparison with other ASEAN countries can be had from Table 2
| Vietnam’s exports in comparison iwth other ASEAN countries 2005 – 2010 | ||||||
| Year | 2005 | 2010 | ||||
| Country | China | Ermerging ASEAN countries* | Vietnam | China | Ermerging ASEAN countries* | Vietnam |
| Categories in billion USD | ||||||
| Total | 902 | 393 | 31 | 1806 | 556 | 55 |
| others | 19 | 22 | 22 | 21 | 27 | 23 |
| Energy/Mining | -1 | 10 | 25 | 0 | 8 | 15 |
| Food and Beverages | 2 | 8 | 14 | 2 | 11 | 14 |
| Chemicals | 5 | 6 | 2 | 6 | 8 | 2 |
| Metals | 9 | 5 | 3 | 11 | 7 | 4 |
| Textiles | 15 | 6 | 24 | 17 | 5 | 28 |
| Machinery and Equipment | 49 | 43 | 9 | 43 | 34 | 13 |
| Source Global Insight 2011, McKinsey Global Institute | ||||||
| *including Indonesia, Malysia, Philippines and Thailand | ||||||
The focus on Vietnam’s textile aspects
VITAS, the Vietnam Textiles and Garments Association, opened recently an office in Russia’s capital Moscow seeking to establish closer cooperation and promoting trade between these two countries.
Vietnam’s textile and garment products contributed USD 14.03 billion (+ 25 %), and fibre exports another USD 1.7 billion exports (+26 %) and total textile exports amounted to USD 15.6 billion or 38 % more than in 2010.
The fourth largest buyer of Vietnamese garments and textiles is South Korea and it might surpass the one billion USD mark this year, in 2011 exports to Korea amounted to USD 904 million (+145%). Korean textile firms have also invested in Vietnam. There are around 450 Korean companies with an invested capital of USD 1.8 billion.
The state owned Vietnam National Textile and Garment Group Vinatex is selling shares to the public in order to increase its competitiveness. It will deprive itself also from non-core activities in the order of USD 9.6 million or 7 % of its capital. Vinatex is the country’s leading textile and clothing producer and is trying to upgrade to the higher end of the market. Textiles and garments accounted for more than 30 % of Vietnam’s total sectors exports of USD 15.6 billion, allowing a beneficial trade surplus of USD 6.7 billion and in 2012 it is expected to reach the level of USD 7 billion.
China’s Texhong Group (cotton supplier) has announced in April 2012 that it will build a USD 300 million fibre plant in Vietnam (Texhong Vietnam Textile JSC-1), in Quang Ninh Provence and its Hai Yen Economic Zone. The site will have an installed production capacity of 210’000 spindles and 80 % of the output goes to China and the EU. The cotton will be imported. In only 50 days the approval license was granted by the authorities.
Vietnam’s garment industry has to import most of the fabrics and raw materials needed since the domestic industry is not yet able to feed the high quality requirements. The imported shares are 75 % of fabrics and 90 % of cotton and all polyester filament and fibre. Fibre demand was high in 2011 and imports reached around 150’000 t.
The fibre imports in the first two months of 2012 can be had from Table 3
| Vietnam’s Fibre Import in January – February 2012 | ||||
| Market | Volume (Tons) | Value (USD) | ||
| Jan – Feb/12 | Change 12/11 | Jan – Feb/12 | Change 12/11 | |
| (%) | (%) | |||
| Taiwan | 18,530 | 1.6 | 32,565,206 | -21.1 |
| Thailand | 9,921 | 32.6 | 16,715,686 | 2.9 |
| China | 4,610 | -39.3 | 9,900,085 | -34.6 |
| S. Korea | 4,109 | -18.2 | 7,987,082 | -20.7 |
| India | 1,311 | 758.9 | 3,193,624 | 304.6 |
| Indonesia | 1,343 | 77 | 2,825,517 | 49.6 |
| USA | 848 | 224.8 | 2,281,056 | 211.7 |
| Singapore | 253 | * | 1,142,847 | * |
| Japan | 212 | 233.7 | 1,060,880 | 355.4 |
| Brazil | 295 | * | 937,621 | * |
| Australia | 207 | 921.7 | 884,869 | 1330.5 |
| France | 309 | * | 759,592 | * |
| Malaysia | 415 | -38.6 | 633,670 | -51 |
| Pakistan | 308 | * | 595,889 | * |
| Belgium | 270 | 235.2 | 536,672 | 248.2 |
| Egypt | 101 | * | 292,952 | * |
| Germany | 25 | 41 | 224,939 | 297.7 |
| Austria | 20 | -87.7 | 70,350 | -86.3 |
| Source: VITAS Vietnam’s Textiles and Garments Association /Vietnamese MOIT Ministry of Industry and Trade 2012 | ||||
It has to be stated also that the Vietnamese government, namely the Ministry of Industry and Trade invites foreign textile investment in order to boost production and export and to improve domestic manufacturing quality. It demanded from the two sectors to put the focus on innovation, restructuring, equity and by boosting promotion activities in the domestic market. Also training activities are encouraged and increasing domestic raw material supply.
Vietnam expects that 2012 will be a difficult year and in February (latest available figures) only ten percent of the sector companies had signed delivery contracts for the second and last quarter of the ongoing year.
Details on Vietnam’s textile and garment exports in February 2012 can be taken from Table 4
| Vietnam’s Textile and Clothing Exports in February 2012 (by markets) | ||||
| Market | Feb/12 (USD) | Change to | 2M/2012 (USD) | Change to |
| Jan/12 (%) | 2M/11 (%) | |||
| USA | 522,547,214 | -6.48 | 1,078,419,394 | 15.57 |
| EU | 132,682,131 | -25.66 | 309,731,171 | 0.77 |
| Japan | 142,625,329 | 14.57 | 265,806,019 | 32.92 |
| Korea | 95,336,153 | 23.09 | 172,336,739 | 55.12 |
| ASEAN | 21,226,212 | 18.88 | 38,352,038 | -7.87 |
| Canada | 16,661,687 | -18.17 | 37,000,439 | 27.7 |
| China | 13,522,377 | -5.69 | 27,440,424 | 76.57 |
| Taiwan | 15,044,031 | 27.62 | 26,728,117 | 4.61 |
| Hong Kong | 6,088,325 | 6.25 | 11,770,118 | 56.7 |
| Russia | 3,954,023 | -38.61 | 10,340,782 | 1.43 |
| Mexico | 3,540,582 | -43.92 | 9,846,555 | 13.87 |
| Australia | 3,832,149 | -26.69 | 9,017,130 | 21.07 |
| Brazil | 1,705,349 | -58.36 | 5,798,860 | 66.96 |
| Panama | 2,963,946 | 12.22 | 5,597,821 | 168.62 |
| UAE | 2,313,810 | -0.84 | 4,646,382 | -36.53 |
| Ukraine | 1,359,033 | -47.49 | 3,946,741 | 48.07 |
| Arab Saudi | 1,373,708 | -36.34 | 3,531,646 | -14.51 |
| South Africa | 1,336,916 | -33.29 | 3,281,237 | -30.56 |
| Chile | 828,629 | -65.51 | 3,229,703 | . |
| Bangladesh | 1,666,988 | 11.04 | 3,127,232 | |
| Argentina | 1,276,475 | -25.77 | 2,996,053 | |
| Norway | 887,917 | -39.18 | 2,347,765 | -3.13 |
| India | 755,754 | -62.21 | 2,237,353 | 25.15 |
| Israel | 776,509 | -39.92 | 2,069,020 | |
| Switzerland | 507,875 | -57.53 | 1,703,850 | 28.48 |
| Turkey | 608,409 | -5.6 | 1,248,104 | -94.01 |
| Angola | 403,613 | -38.21 | 1,056,505 | |
| Cuba | 610,990 | 46.26 | 1,028,731 | 223.06 |
| New Zealand | 377,907 | -10.07 | 798,146 | |
| Egypt | 382,805 | 229.41 | 499,014 | -47.88 |
| Nigeria | 36,055 | 1.92 | 71,431 | |
| Source: VITAS Vietnam’s Textiles and Garments Association /Vietnamese MOIT Ministry of Industry and Trade 2012 | ||||