Vietnam's Textile and Clothing Industry Continues to Grow Double Digits

Textination Newsline 2010 / 08 / 17 Vietnam's textile and clothing industry continues to grow double digits

Sales targets require new investments / Higher-grade machines will benefit from learning

Hanoi (GTAI) - Among the textile and apparel exporting nations Vietnam stands in sixth place. The sector is the most important foreign exchange earner. For 2010 an increase of about 20% is expected. About 30% of sales relate to foreign invested enterprises. However, the investment is con- centrated so far on the clothing division. In the textile sector Vietnam is often dependent on imports. Suppliers wishing to participate in the growth must show local presence. (Contact adresses)

Despite the global economic crisis the Vietnamese textile and clothing industry was with an export value of the equivalent of nearly U.S. $ 9.1 billion and a total export share of 16.1%, the largest source of foreign currency in 2009. The first half of 2010 in which the producer registered exports of $ 4.8 billion (+17.2%) ran very promising. For the full year export revenues are expected of about $ 10.5 billion, said Le Quoc An, Chairman of Vietnam Textile and Apparel Association (Vitas) and the largest manufacturer of Vietnam National Textile and Garment Group (Vinatex). 2011, growth could remain at 20-30%.

By 2015 the export target is about $ 16 billion. World Bank says Vietnam is ranked sixth among the textile and apparel exporting nations worldwide after the People's Republic of China, the EU, Tur- key, Bangladesh and India. In 2008, the local share in the total international exports of the sector was at 2.5%. 2010 they might reach about 2.7%, stated Vitas.

Targets of the textile and clothing industry 2010 2015 2020

Turnover (in billion US$) 13 - 15 18 - 21 27 - 30

Exports (in billion US$) 10 - 12 14 - 16 20 - 22

Employees (in Mio.) 2.5 3.5 4.5

Production of fabrics (in 1,000 t) 1,000 1,500 2,000

Fiber production (in 1,000 t) 350 500 650

Localization share (in %) 50 60 70 Source: Vitas

2009 precursors worth $ 8.9 billion came into the country: 6.1 billion dollars for fabrics and $ 2.7 billion for textiles and clothing. The competitiveness of the industry therefore depends directly on the world market development of textile raw materials. For example, the price of cotton increased by 55% in 2009 and due to declining harvests in the major cotton production areas a further 25% by mid-2010. According to "Vietnam Economic News" the domestic production covers only 10% of the demand for cotton, 60% for synthetic fibers, 70% for non-wovens, 50% for woven fabrics and 70% for auxiliary materials. The average local-content-share amounts 38% stated Vinatex

The only manufacturer of synthetic fibers is the Taiwanese investor Formosa in Dong Nai. In addition, the Vietnam National Oil and Gas Group (Petro Vietnam) and Vinatex build a factory for the production of synthetic fibers in Haiphong (Investment: $ 325 million). The Petro Vietnam Vinatex Dinh Vu Joint Stock Company (PVTex) will start production in late 2011 as the largest polyester fibers factory with an annual output of 175,000 tonnes of fiber to operate. In addition, Vinatex plans to

build three textile and dyeing centers by subsidiaries in the industrial zones of Ninh Binh, Tra Vinh and Khanh Hoa. They should attract funders to invest in textile printing and dyeing works. Also, according to Ministry of Industry and Planning in Nhon Trach, Dong Nai province, a zone for dyeing will be established in 2015. Furthermore, the establishment of a testing laboratory for textiles is pro- vided.

Overall, in 2009 the production of woven fabrics starting at 1.2 billion square meters should be pow- ered up to about 1.5 billion square meters in 2015 and 2 billion square meters in 2020, said the textile federation. The stock of sewing machines of about 1 million will double over the next ten years, the number of spindles will increase from four million to seven million units. The influx of foreign clothing manufacturers continues. Two U.S. companies, the International Textile Group (ITG) and the Hanes underwear manufacturers will shift their production from China. Hanes wants to increase the workforce from 5,000 to 10,000. Overall, in the first half of 2010, 20 foreign companies invested in the clothing sector, the majority from Korea (Rep.), Hong Kong (SAR), China and Taiwan.

According to the Ministry of Planning and Investment since 1988 over 1,100 projects of direct inves- tors with an accumulated volume of the equivalent of $ 6.6 billion were registered. At least 30% of sales in textiles and clothing are based on enterprises with foreign investment background.

According to statistics from Vitas, there are about 2,400 garment manufacturers. There are also 145 spinning mills, 401 weaving mills, 94 dyeing works and 112 manufacturers from the supporting industry. Most of them are small or medium-sized private companies or public limited companies. Just under 450, mostly larger firms have foreign equity investment (of which about 200 are from Taiwan). These are usually larger (at least 250,000 units / month) and technically good equipped. Only about 50 companies are now in state hands, including Vinatex with an export share of almost 19% (2009: $ 1.7 billion).

With the growth the demand for textile and clothing machinery increases, but mainly brands from Japan, China, Japan, Italy, Spain and Turkey and from India (washing machines by Ramson) are purchased. German manufacturers only come into operation for special applications. As a result, the export of textile machinery to Vietnam decreased, according to VDMA 2008-2009 from 34.7 million to 15.5 million euros. However, German textile machinery would be used in future, said Le Quoc An, Chairman of Vitas and Vinatex. The local representative of an German industry company rates the situation in a similar way.

Although especially Chinese suppliers could sell well in recent years because of their low prices (10- 30% of the German price), but many customers noted that quality and service left a lot to be desired. As a result, other, higher quality should come into play. This means for German companies, to be in site right now, if possible with a representative office. Experience has shown that an agent often is not enough to convince customers of the benefits of German high priced products which are in need of an explanation.

The U.S. is the most important customer for Vietnamese textiles and clothing by far, in 2009 they converted just under U.S. $ 5 billion or 54% of industry exports. It was followed by the EU (2009: 20%) and Japan (around 11%). In particular, sales to Japan increased since the end of the Vietnam- Japan Economic Partnership Agreement (VJEPA) at 2009/10/01 by 16.3% to around 1 billion by 2009 (2008: 810 million) $. For the States Vietnam is the second largest supplier after the PR China, Japan is in third place. As further markets Korea (Rep.), with an increase of 67% for 2009 and the countries of Latin America are judged.

The companies also want a stronger commitment to the so far rather neglected market. Vinatex and other manufacturers build their distribution network in Germany. Viet Tien Garment joint stock company or brand names such as "Ninomaxx", "PT 2000" "Wow" or "Foci" focus on products in the mid-

price range. High-priced segments are served by mostly western branded goods, while cheap com- modities come from China. Low priced women's and children's articles for the rural population are particularly promising for local companies.

Textile and clothing trade (in Mio. US$; Change compared to the previous year in %) Class of goods 2007 2008 2009 Change

Total exports 48,561.3 62,685.1 56,584.0 -9.7 among:

Apparel and Textiles 7,479.7 9,120.4 9,065.6 -0.6

Total exports 62,682.2 80,713.8 68,830.0 -14.7 among:

Fabrics/Clothing material 3,957.0 4,457.8 6,158.2 38.,1

Apparel and Textiles 2,152.2 2,355.1 2,742.6 16.5 Source: Custom Office

For logistical reasons and due to the of lack of qualified personnel and to suboptimal technical equipment, it is difficult for many companies to manufacture orders in the required time of 60 days after contract signing and to deliver them to the customer. A further burden are the current electricity shortages leading to significant production losses. Vitas considers, unless it rains soon and exten- sively, a loss of production of 20% for probably.

Currently the industry employs nearly 2 million people according to "Vietnam News"; each year some 100,000 new jobs are added. In fact, now many companies have difficulties to fulfill their de- livery obligations, the capacity shrunk by 10% since 2009. Workers in the garment industry come to a maximum of 4 million Vietnamese Dong (equivalent to about € 165) per month. Many companies now pay the state minimum wage. As a result, the average wage was about a million Dong (41 €), stated "Vietnam News". Under those conditions enough workers cannot be recruited any longer.

According to an agreement between unions and textile associations of April 2010 depending on the location of the factory there will be four minimum wage levels since 1st May 2010: 1.2 million, 1.4 million, 1.6 million and 1.7 million Dong (about 50-70 €). The agreement is binding for all mills, the level of wages is to continue to be reviewed every six months. Not all companies comply to the specifications. This applies particularly to those with foreign capital from the Asian region. Here it comes again and again to strike, as in the case of the Macallan Garment Co. from Hong Kong, which neither paid the guaranteed minimum wage nor the required social security insurance contri- butions.

According to Vitas, the wage increase is an important step to avoid the movement of labour to other industries. For 2011 a further increase of real 10% is expected, over the next five years the wages could double. Despite relatively low productivity and rising labor costs Vietnam remains an attractive business location for foreign textile companies. The German company van Laack, which has been operating for many years a manufacturing facility in Hanoi can attest to this from personal experience.

Contact

Vietnam Textile and Garment Association (Vitas) Contact Person: Le Quoc AN, Vorsitzender (spricht Englisch) 25 Ba Trieu, Hoan Kiem District, Hanoi Tel.: 0084 4/39 34 96 08, 38 25 12 55, Fax: -38 26 22 69 E-Mail: [email protected], Internet: www.vietnamtextile.org.vn

HCMC Association of Garments, Textiles, Embroidery, and Knitting 52-70 Ba Gia, Ward 7, Tan Binh District, Ho Chi Minh City Tel.: 0084 8/62 97 35 67, Fax: -62 97 35 40 www.agtek-hcm.com

Vietnam Spinning Association 10/Fl., 10 Nguyen Hue, District 1, Ho Chi Minh City Tel.: 0084 8/ 39 11 09 83, Fax: -39 11 09 82 E-Mail: [email protected], Internet: www.vietnamspinning.org.vn

Source: Stefanie Schmitt, Germany Trade & Invest www.gtai.de