It is said that the history of the industry's development started with the establishment of the Nam Dinh Textile Complex in 1897. The industry developed faster post World War II. In the south, the firms which were set up started using the latest European machinery whereas in the North, state enterprises equipped with machinery from China, former Soviet Union and Eastern Europe were also set up during this period.
The textile and garment industry in Vietnam mainly uses materials such as cotton, synthetic fibre, woolens, filament and silk. At present, Vietnam can produce cotton and silk, which meets only 10% of the demand. In the period between 1995?-2000 weaving material production has received an outstanding result. However, as against the growth potential and demand for textile and garment industry, the weaving material production is very modest. Vietnam has a rather huge potential for cotton production and hence it can increase the areas under cotton cultivation.
The products of the fabric sector, mainly cotton and polyester mixed fabric, are materials of garment production for the domestic market. It is observed that the fabric industry supplies about 10% of total contribution demanded by the garment sector, the remaining 90% of materials for the garment production for export are imported from overseas. A major part of imported material is got in through subcontracting arrangement.
The garment production is mainly aimed to the export markets through international subcontracting agree?ments between Vietnamese producers and foreign partners, where the foreign partners normally provide the designing and marketing functions as well as most of the required materials. This is recognized in the trade as Cut, Make and Trim (CMT). In this trade, there is very little value addition. In the past, the garment sector used to use 100% of fabric produced by Vietnamese textile sector to produce products for export.
Until 2004, there had been about 2,000 textile and garment houses nationwide, making as much as $4.4 billion from exports, contributing 16.5% of the country's total export value.
Vietnam is now coming up as a well-built nation with a strong network of infrastructure and a booming economy. Vietnam's textile industry has developed along with other sectors of the economy, and it not only fulfills the domestic demand, but also exports substantially to the other up coming markets. This resurgent textile industry has led to a significant potential for export of Indian textile machinery to Vietnam.
Restructuring production costs to raise competitive edge and stabilizing labor should help Vietnam's garment and textile sector set its 5.4 billion USD export turnover target in 2006.
Vietnam has aims to be among the 10 largest garment producers in the world, with export turnover of $10 billion, or five times higher than the present level. For growth of this sector, the investment capital needed is approximately 800 million US dollars for the period from 2005 to 2010. Currently, Vietnam ranks 16th among the 153 existing apparel makers and exporters in the world and the condition is further expected to change, as Vietnam is projecting to set its position among the top 10 largest producers by 2010.
Vietnamese Textile, Garment Exports to US Increasing
The US is the main market for the country's garment exports, accounting for nearly 53 per cent of the market share. Vietnamese textile and garment exports to the US in 2005 rose despite of the cutthroat competition, as each required a large contribution of the world market. Experts believe that Vietnamese textile and garment exports will continue to increase in 2006.
Vietnamese garments face strong competition in the US market against exports from 150 other countries, mainly duty-free goods from China. Though, in the last several months, textile and garment exports in general and those to the US in particular rose and textiles and garments continue to be one of Vietnam's major exports. Vietnam is anticipated to gain a projected US$4.8-4.85 billion from textile and garment exports in 2005, nearly 11 percent more than in 2004.
In the first 10 months of 2005, it exported textile and garment products worth US$2.13 billion to the US. US$1.41 billion achieved from quota-controlled exports, which calculated to 66 percent of the total and was 3.1 percent as against the first 10 months of 2004, and US$739 million gain from non-quota exports which was 34 percent of the total and a small raise over the same period in 2004.
In October 2005, textile and garment exports to the US gained fast momentum, giving total revenue for the first 10 months of 2005, which was 0.33 percent higher than the same period in 2004. Export earnings of the first 11 months of 2005 were 4.99 percent more than the same period in 2004 and that for the whole year 2005 is projected to be six percent more than in 2004.
Vietnam, US further extend garment agreement
Recently, Vietnam and the US have agreed to further extend their bilateral garment and textile agreement until Dec. 31, 2006.
A Memorandum of Understanding (MoU) for this was signed by Vietnamese Ambassador Nguyen Tam Chien and David Spooner, Special Textile Negotiator of the US Trade Representative.
Under the MoU, the extended agreement will have existence from the signing date through Dec. 31, 2006, unless Vietnam becomes a member of the World Trade Organisation (WTO) and the US applies WTO agreement to Vietnam's exports.
On October 21, 2005, the Ministry of Trade and the Ministry of Industry in a joint circular announced an instruction for the provision of quotas for textiles and garments to be exported to the US in 2006. The circular states that the two ministries will offer visas for textiles and garments of all categories going to the US from January 1 to June 30, 2006. Between January 1 and June 30, 2006, the two ministries shall take into consideration of offering additional quotas for product categories, of which 70 percent of the 2006 quota has been assigned based on export realization and additional export requirements of businesses.
Product categories of which less than 70 percent of their 2006 quota is utilized by June 30 shall automatically be given a visa for goods approaching to the US. The two ministries will later draft a policy for product categories that have 90 per cent of their 2006 quota utilized if it turns out to be essential.
Some experts believe that business can record high for different categories, so it is sure that the entire 2006 quota for these goods would be utilized in 2006. Occasionally if the amounts of goods registered go beyond the quota that the ministries permitted to them, the two ministries will consider assigning extra quotas to high-gaining exporters in 2005 and businesses that have signed export contracts with major US importers.
Vietnam's textile and garment exports to the US will be challenging because Vietnam is one of the few textile and garment making countries that is restricted by US quotas. Other textile and garment makers in the region are both highly aggressive and are not controlled by many trade barriers like Vietnam. But experts believe that with efforts, Vietnamese textile and garment exports to the US will continue to increase in 2006 and will fulfill this year's target.
Under the quota scheme, Vietnam's apparel exports to the US are limited, while exports to the US calculated to 60% of total exports. Inspite of the major problems, Vietnam endeavor's to gain an export turnover of $5.6 billion in 2006.
Vietnam's textile exports to Japan
Vietnam's textile exports to Japan rose again, at 14%. Sai Gon 3 Garment Company contributed about 40% of the Vietnam's textile and garment export value to Japan.
Distressed garment exports to EU
For the first ten months of 2005, Vietnam's revenues from garment exports to the EU rose by a mere 5 per cent over the same period last year. This negligible growth in earnings is far below the earlier industry expectations.
The country earned around US$700 million from garment exports to the EU in October 2005, reported the Ministry of Trade. In the beginning, the textile and garment industry anticipated strong annual earnings growth of 18-20 per cent from clothing exports to the EU since the EU had approved to eliminate quotas on Vietnamese clothing from January 1, 2005. Industry experts recognized the sector's gloomy earnings figures to the uncompetitive production costs of Vietnamese clothing exports as against those from China, India and Pakistan.
While clothing exports from these other countries to the EU have increased extremely in 2005, Chinese exports of cotton fibre shirts to the EU in this quarter increased to 39 million units over the previous quarter declared the ministry. Furthermore, Chinese sweater exports to the EU in the past quarter increased more than eight times, to 125 million units, while Chinese T-shirt exports to the EU for the first three quarters of this year swelled by 320 per cent over the same period last year. Vietnamese T-shirt exports to the same market decreased by 10 per cent over the corresponding period.
This extreme condition stems from a 10-15 per cent reduction in the competitors' production costs as against last year, while Vietnam's production costs have either stayed constant or reduced by only 5-8 per cent. Many local textile and garment companies believed that it is hard for them to survive in competitive foreign markets with higher production costs, and local enterprises had to make hard attempts to decrease their cost disadvantages, which would also support increase their competitive edge, not only in case of product pricing but also quality standards and delivery schedules.
Currently, only few large domestic garment makers such as Nha Be and Viet Tien have started using latest equipment and made latest updated facilities to decrease production costs in order to hold on to traditional customers and pull new ones towards them in big export markets like the EU and US. Despite EU's lift of the textile quota on Vietnamese garments, exports to this market stayed sluggish due to stiff competition from Chinese goods.
Production capacity and price factors
The local textile and garment industry of Vietnam still experiences, from one perceptive, a shortage of laborers and the potential risk of dumping lawsuits. Though, Vietnam's garment and textile sector has objected to raise investment as well as making raw material centers and apparel-specific industrial parks to increase localized production capacity and material supplies.
Annual production capacity
.Cotton and blended yarns - 75,000 tons
.Sewing and embroidery thread - 700 tons
.Acrylic and wool/acrylic yarns - 3,000 tons
.Fabrics - 140 million square metres
.Knit products - 25 million
.Garment - 54 million pieces
.Towel - 140 million pieces
In addition to the insufficient quota, the high price of exported apparel has been regarded as a barrier to Vietnam's efforts to increase export volume.
According to the Ministry of Trade, apparel products of nearly all categories have export prices 5-7%, or even 10% higher as against prices provided by Vietnam's competitor, covering China, India, Bangladesh and Indonesia.
For example, the unit price for category 338/339 in Vietnam is $5.79-8.2 per sq m. while it is available at $4.66-4.88 in Bangladesh, $6.46-7.84 in Indonesia and $4.68-5.84 in China.
Trade experts have suggested the apparel producers to accept a decrement of 5-10% in orders implementation in a bid to bring more clients. The producers have also been informed to focus on high-quality products to increase competitiveness.
Vinatex Group: The co-operative efforts and expansion
The National Textile and Garment Corporation (Vinatex) was set up in 1995 and has contributed a lot to the development of the national garment industry for 10 years now. Though, the corporation has only 105,000 workers or 10 per cent of the workers of the national textile and clothing industry, but last year it made an industrial production value of nearly VND 9,500 billion or 32 per cent of the industrial production value of the sector. Particularly, the corporation received an export turnover of over $1,035 million or 23.6 per cent of the export value of the industry. Its annual profit is VND 510 billion and share to the State budget is VND 1,768 billion.
In the spinning sector, Vinatex possessed 9, 00,000 spindles and 6,000 rotors, from which over 40% are latest, imported from Germany, Italy and Japan. Every year, this sector produces 75,000 tons of cotton and blended yarn, 700 tons of embroidery and sewing threads, 3,000 tons of wool acrylic yarns and 5000 tons of jute yarns. In the weaving sector, Vinatex is working with 6,400 looms such as shuttle, rapier, projectiles, air-jets and water-jets. The productivity is 140 million square meter of fabric per year. Most of its machineries are imported from Belgium, Germany, Switzerland, Japan and South Korea.
In reality, the corporation is at present working in the form of a mother and subsidiary business. Forty out of fifty two of its affiliates have been equities so far. Vinatex possesses major contributions and is a mother company of 28 out of the 40 equity enterprises. Furthermore, Vinatex has reorganized 9 state-owned businesses' of it's into one-member limited companies working in accordance with Corporate Law. Fifteen among its affiliates have started in the mother-subsidiary model for long. So the Government's decision on establishment of the Vinatex Group is a firm legal basis for operation of the corporation and its further shares to the development of the national textile and garment industry. It possesses 3 training schools and 3 research institutes offering many services to business that are not its affiliates.
Viet Tien Garment Co received an inspiring profitability of 35 billion VND, followed by Phong Phu Garment and Textile Co 25 billion VND and Nha Be Garment Co 20 billion VND.
In the interim, only five out of 200 Chinese exporters have achieved the revenue of more than $1billion. In order to have one of the 10 largest apparel exporters, Vinatex will spotlight on strengthening production, making trade marks and developing domestic and export markets.
The goal for the group is to become the foremost multi-ownership group in terms of both, production capacity and competitiveness in the area by 2010. They will have a number of first brands, an export value of $2.5 billion by 2010 and $3.5 billion by 2015 and 250,000 workers by 2015. The Vinatex Group will be one of the biggest textile and garment groups in Asia if these goals are gained.
Under the development plan, in 2006, Vietnam will focus on making up textile and garment material trading centers, which are regarded as the most important infrastructure for a good garment industry. In the near future, Vinatex will establish the design and industrial fashion models business centers in Hanoi and HCM City. In the domestic market, Vinatex has established 28 supermarkets nationwide. It is setting up to constantly increase the agent network in order to dominate the domestic market, offering as the starting point for export.
Vietnam is planning to build 10-20 national brand names, of which 1-2 brand names will be promoted abroad. It is also planning to cooperate with 2-4 foreign brand names to produce products in Vietnam for domestic use.
Vinatex also plans to start a representative office-cum-showroom at Dusseldorf -Hannover, a fashion centre of Germany and the entire EU. Not only this, but it is also planning to start an office and a shop in Budapest, Hungary, in September 2006.
This year Vinatex, which possesses more than 50 member companies and subsidiaries, is expecting to make 570 million sq.mt of silk, 137.6 million of knitwear and more than 1 billion of apparel.
Vietnam's apparel makers will still have to face a lot of problems this year since Vietnam has not yet become an official member of WTO.
Conclusion
In the future when Vietnam will join the WTO, competitiveness of the textile and garment industry of the country will rise severely, thanks to the no quantitative limits. Really, many large importers from the EU and US have admitted that Vietnam will be one of the biggest textile and clothing supplying countries in the years to come. Actually, Vietnam will be covered in the list of top 10 textile exporting countries if it can utilize its capacity to the fullest. There is no doubt then that this sector might gain an export turnover of about $8 billion by the year of 2010.
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