As China and its workers get wealthier, globaI manufacturers are looking south for less expensive places to do business. But Cambodia faces labour strikes. The Thai government suffers endless protests and Myanmar needs infrastructure updates. As a result, many companies are setting their sights on Vietnam.
Hundreds of them, in fact, descended on Ho Chi Minh City last month for Saigon Tex, a garment and textile expo. Sharing a border with China, Vietnam boasts geographic convenience, as well as political stability and low costs. Those attract companies like Spain-based Jeanologia, which showed off its laseron-denim technology at the expo.
“It is becoming such an important hub for American and European brands,” Jeanologia area manager Borja Trenor Casanova said of Vietnam.
The Trans-Pacific Partnership (TPP) helps, too. As one of 12 countries negotiating the trade pact, Vietnam stands to benefit most from a clause that would cut tariffs on textiles and apparel, which are among the nation’s top exports.
To take advantage of the tax reduction, foreign companies are shifting their factories to Vietnam. Nguyen Thi Cam Tu is general manager at Thach Anh Vang, which represents manufacturers from Germany, Turkey, the United States, and others. She said the TPP is part of the reason her company saw a 50 percent increase in annual turnover in 2013,
“I see a lot of investment going on, because we see quite a lot of inquiries recently,” Cam Tu said, as a giant yarn spinner roared at the vendor slot next to hers at the expo.
The growth is reflected across the country. Textile exports increased 20 percent in the first quarter of 2014, compared with the same period last year, according to the General Statistics Office.
While production and revenues have risen steadily, Vietnamese companies and officials recognise a gaping weakness in the garment industry: It buys most of its materials from other countries. The Vice Minister of Industry and Trade Ho Thi Kim Thoa told an audience at the expo that Vietnam must set targets to produce more fabrics on its own.
“These targets demonstrate an urgent need for technological innovation, improvement of quality control, labour management, environmental management, as well as improvement in the textile and garment supply chain in accordance with international standards,” Kim Thoa said.
If it doesn’t develop more local suppliers, Vietnam won’t be able to tap the full potential of the Trans-Pacific Partner ship. The agreement is likely to include a yarn-forward rule, which requires Vietnam to make clothes with materials from TPP member countries in order to receive tax-free import benefits.
But people are looking to improve the garment sector in other ways, too. Casanova said Jeanologia’s laser-printing is one of the technologies that could help Vietnam become a value-adding step in the production chain. The country, which achieved lower middle income status in 2010, is still very dependent on cheap labour. But to avoid the middle-income trap, it needs to find ways to add value to its exports. Casanova said it seems to want technology for that purpose, as well as to promote environmental substainability in business.
“Vietnam is showing interest in a change in the industry,”he said.
Resource from Myanmar First Bilingual Business Journal May 1,2014