Manufacturing in Vietnam an abundance of opportunities

Industry

In 2016, Vietnam was recognized as the number three garment exporter in the world, number two went to Bangladesh and number one to China.  

In 2017, Vietnam’s textile and garment industry earned US$31 billion from exports, a year-on-year increase of over 10 percent. This growth momentum will continue in the next few years, with exports predicted to reach US$34-35 billion this year, and US$50 billion by 2020.

Vietnam has around 6,000 textile and apparel enterprises that generate employment for more than 2.5 million workers while the population in Vietnam is about 90 million.

According to research by the Ministry of Labour, every $1 billion of export value generated from Vietnam’s textile and apparel industry can create an additional 250,000 jobs, moreover, the textile labor cost in Vietnam is still relatively low compared to many other countries in the region.

Free Trade Agreements (FTA)

Increased market access through free trade agreements and technology are the major growth drivers for the textile and garment industry. Vietnam’s bilateral and multilateral FTAs continue to provide Vietnamese manufactures access to new markets, minimizing the effect of growing trade protectionism.

With new FTAs to be in effect such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Vietnam-EU FTA, new markets will lead to higher exports and push manufacturers to develop the industry’s supply chain so that they can take full advantage of the preferential tariffs and increase the competitiveness of their products.

Opportunities and Challenges

In 2016, the minimum wage of the garment manufacturing industry in Vietnam was about USD 108 per month. The advantage of the lower labor cost has resulted in lower production cost, thus being price competitive in the global market, which helps Vietnam to attract global attention in the apparel sector.

Vietnam’s garment industry is highly dependent on imports for its machinery equipment, raw materials, and accessories, which not only decreases its profit margins but also keeps it in harms reach against foreign cost fluctuations.

However, the growing prices of electricity and transportation, along with an increase in minimum wages are now becoming bigger causes of a headache to the industry players. Therefore, despite remaining global demand, the industry faces many challenges.

Vietnam’s domestic market demands are also growing powered by young aged consumers, increasing urbanization, and growing disposable incomes. Now these markets are attracting major international brands.

The country’s retail sales are rising at a rate of 20% annually, and spending on apparel is the second highest category. 

Investments

Between 2012 and 2016, the industry has attracted over US$5 billion in foreign direct investment (FDI). FDI for this year until April 2018 stood at US$1.1 billion, with majority directed towards yarns and textiles.   With China, Taiwan, Hong Kong, Japan, and South Korea leading the investments. 

The first 11 months of the calendar year 2017 witnessed a steep 11.9 percent spurt in Foreign Direct Investment (FDI) in Vietnam as compared to the previous year, according to a government release, where Vietnam received a sum of USD $16 billion in FDI, mainly driven by the manufacturing sector.

FDI in Vietnam’s flourishing textile and apparel industry is increasing rapidly, which is making the country one of the most popular destinations in Asia for textile investment.

According to the data from Vietnam’s Foreign Investment Agency (FIA), FDI investments in Vietnam were up 152.78% year-on-year in the first two months of 2017, and investment in Vietnam’s textile and apparel industry now accounts for 21% of the country’s total FDI.

FIA also reports that Chinese investors have registered 123 investment projects in Vietnam between January and February of 2017. One of the largest among these Chinese investments is the $220 million invested in a Vietnam polyester synthetic fiber plant in central Tay Ninh province.  Chinese investment in Vietnam’s textile plants will enable it to have more advanced technology and increased capacity in its textile and apparel productions.

In the meantime, textile investment from South Korea in Vietnam is also increasing. By early 2017, South Korea’s Sea-A Group has committed $2 billion in capital to Vietnam’s textile and garment industry.

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