Vietnam’s garment export ranks second in the world

International Business News  –  At present, some industry insiders say that the development speed of Vietnam in recent years is “Even better than China back then”. Taking the textile industry as an example, recently, the relevant representative of the Vietnam Textile and Apparel Association said that in the first half of 2022, Vietnam’s textile and clothing export performance was good, with an export value of about 22 billion US dollars, a year-on-year increase of 23%, a record high.

Statistics show that Vietnam’s clothing exports are second only to China, ranking second in the world. Yarn exports are also on the rise, with exports totalling $5.6 billion in 2021, while the January-June 2022 period is expected to reach around $3 billion. Vietnamese media pointed out in the report that this reflects the efforts of enterprises to invest and increase the export of goods. However, it is expected that the unpredictability of the market and the rising prices of raw materials will be a huge challenge for enterprises.

How did the name “better” come about?

Judging from the data feedback from enterprises, Duan Wenyong, director of the Organization Department of Nam Dinh Textile Joint Stock Corporation, said that the company’s revenue in the first five months of this year was 1.023 trillion VND, and the half-year plan has been completed, an increase of 123% over the same period last year.  At present, the company’s orders have been fully booked until the end of September, or even the end of the year; Du Feijue, deputy general manager of Yuesheng Head Office, said that in the first quarter of this year, the company’s revenue has reached 25% of the annual plan, and has completed the annual plan profit 35%; Li Jinchang, chairman of Vietnam Textile Group, said that in the first quarter of this year, the group’s operating efficiency increased by nearly 75% year-on-year, and its total revenue increased by nearly 50% year-on-year.

What does Vietnam rely on to achieve such results? Vietnam’s low labor wages and raw material costs are a huge advantage for the development of Vietnam’s manufacturing industry. The average monthly salary of Vietnamese production workers is only US$216, which is less than half of the wages of Chinese workers. Not only that, Vietnam is also one of the countries with the largest labor force in Southeast Asia, with 57.5 million workers, which is equivalent to the labor force of Malaysia and the Philippines combined. All these have provided the advantages of human resources and material resources for the rapid development of Vietnam’s manufacturing industry.

The low added value and labor-intensive characteristics determine that the textile and garment industry needs to move to areas with lower costs. As far as Vietnam is concerned, in addition to the low cost of production factors such as labor, which has enhanced its export competitiveness of textile and apparel products, since joining the WTO in 2007, the country has signed a number of bilateral and multilateral agreements with Japan, South Korea, the European Union and other countries. The free trade agreement enables its textile exports to enjoy a “zero tariff” policy in many countries.

Vu Dejiang, chairman of the Vietnam Textile and Apparel Association, said that in the context of various difficulties brought about by the long-term impact of the epidemic, the export volume of textiles and clothing in the first six months of this year was impressive. This is thanks to 15 free trade agreements that have come into effect, opening up a more open market space for Vietnam’s textile and garment industry.

In addition, Vietnam has introduced a number of preferential policies for foreign investment in the garment industry, such as tax, land and other incentives. Some industry insiders believe that “Vietnam is very much like replicating China’s economic development trajectory in the first 30 years, relying on processing trade to seek development.”

Opportunities and challenges

Vietnam’s “Saigon Economic Times” reported that clothing orders are pouring in, but some manufacturers are afraid to take new orders due to insufficient production capacity. The biggest difficulty facing Vietnamese garment enterprises is the shortage of labor and raw materials. Analysts predict that Vietnam’s textile and apparel exports are likely to exceed the set target of US$42-43 billion this year. Among them, Vietnam’s major markets for textiles and clothing, such as the United States, Europe, and Japan, have achieved considerable results.

However, the other side of Vietnam’s rapid development is the gradual loss of various cost advantages, the first of which is the labor cost. For the past ten years, Vietnam has raised the minimum wage every year. According to the Vietnam News Agency, from July 2022, the minimum wage in Vietnam will increase by 6% from the current wage base.

Textiles, garments, leather and footwear are two labor-intensive industries in Vietnam’s economic sector. Among them, there are about 2 million employees in the textile and garment industry, accounting for 25% of the entire processing and manufacturing industry. Both industries have faced labor shortages in recent years, especially in the wake of the COVID-19 pandemic. On average, these two industries create 20,000-22,000 new jobs each year. However, the available labor force in the textile, apparel and footwear industry has dropped significantly in recent years, to just over 1,000 a year. Many companies are facing difficulties in recruiting more workers to fulfill the new orders.

In the opinion of some practitioners, Vietnam’s textile and footwear industry will have to undergo changes and restructuring, and cannot rely on cheap labor as much as it is now, because these advantages will gradually disappear. It is an inevitable trend for workers to abandon textiles, leather and footwear and turn to other industries with higher value, higher productivity and higher wages, such as electronics and tourism. In the future, as Vietnam gradually moves up the value chain, these two industries will no longer be “very sought-after industry”.

In fact, in the first quarter of this year, there have been many bad signals, which brought many difficulties to the Vietnam National Textile and Apparel Group and even the Vietnamese textile industry, including geopolitical risks such as the conflict between Russia and Ukraine, relations between Russia and the West, etc. Raw material prices and transportation costs have soared, among other things. Therefore, companies must develop flexible solutions to respond and adapt to market conditions in a timely manner, thereby proactively increasing commodity production and exports.

Wunderkind analyzed that high inflation in the U.S. and Europe has led to a surge in food prices, which will lead to a decline in the purchasing power of consumer goods; among them, textiles and apparel will drop significantly and affect business orders in the third and fourth quarters. The Russian-Ukrainian conflict has not yet ended, gasoline prices, shipping costs continue to rise, leading to rising production costs of enterprises, raw material prices rose nearly 30% compared to the past. These are the challenges faced by enterprises.

In addition, Vietnam lacks vertically integrated enterprises with complete industrial chains and mature upstream and downstream industrial clusters. In Vietnam, upstream supply chains such as yarns, fabrics and accessories are scarce, and the raw materials required by Vietnam’s textile and garment manufacturing industry still rely on imports. According to the data of the Vietnam Textile and Apparel Association, 55% to 60% of the raw materials and accessories of Vietnam’s textile industry come from China, especially the raw materials, yarns, and fabrics of clothing are mainly imported from China. This also affects the overall anti-risk ability of Vietnam’s textile and garment industry.