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10/17/2018

Textiles and Apparel Status and Outlook

Vietnamese garment and textile companies face not only challenges, but also opportunities, argues Zoya Vassilieva, a director leading Pricewaterhouse Coopers’ strategy practice.

Key points:

  • In addition to being a highly significant contributor to export earnings, the garment and textile sector employs around two million people, of whom 80 per cent are female, many are migrants from the poorer rural provinces. As migrant workers are often responsible for supporting extended families in the countryside, there are potentially millions of lives dependent on the sector’s performance. Significant changes in the sector can have major social impact.
  • Recent data (2006) from the Ho Chi Minh City Association of Garments, Textiles, Embroidery and Knitting (Agtek) and the Vietnam Textile and Apparel Association (Vitas) indicate that there are around 2,000 garment and textile enterprises in Vietnam, including 50 state-owned enterprises (SOEs), 1,400 private enterprises and 450 foreign direct-investment (FDI) enterprises.
  • Of these, approximately 1,100 companies, including some 200 foreign-invested companies, are based in and around Ho Chi Minh City. Out of 2,000 companies, 1,280 are garment enterprises, 120 are spinning companies, 340 are textile ventures, and the remaining 260 are commerce and service businesses.
  • The majority of textile and garment exports are destined for the US, followed by the EU and Japan. The increase in export revenue is the result of Vietnam’s integration into the global supply chain in line with the shift in sourcing by retailers from high labour cost centres to low labour cost centres. According to research by PricewaterhouseCoopers, Vietnam ranks amongst the most attractive manufacturing locations, not only in Asia but in the whole world.
  • In 2007, the US represented 58 per cent of Vietnam’s textile and garment exports, growing at a Compound Annual Growth Rate (CAGR) of 23 per cent during the 2003-2007 period. The European Union and Japan represented 19 per cent and 9 per cent of the exports, growing at a CAGR of 27 per cent and 8 per cent respectively. Germany and the UK are two largest markets in the EU.
  • The CMT production modality allows Vietnamese garment producers to strengthen their operational capacity without committing scarce financial resources or encountering exposure to market risks. Substantial room to improve product quality and delivery conditions exists even under the CMT modality. While Vietnam currently is competitive in the production of garments, productivity of CMT is still low by international standards primarily due to inadequate management practices. Customers for CMT business are usually intermediary agents based in South East Asian countries and territories such as Hong Kong, Taiwan, Korea and Thailand.
  • Garment exports are a key element of the export strategies of many emerging economies, including Vietnam. In all cases garment exports started with CMT types of business (a model of work often driven by a lack of available working capital) and a plan to move away from CMT to various levels of Freight On Board (FOB) manufacturing within a five-year period. However, most Vietnamese garment manufacturers (93.6 per cent) are still involved in the CMT or other low value-added operating models where fabric suppliers are appointed by multinational retailers or foreign customers, as they want to ensure the use of the right fabric, consistent quality and timely delivery – demands which cannot be met by Vietnam’s manufacturers.
  • While the government plans to invest around $3 billion in developing the textile and garment sector during the run-up to 2010, Evas plans to invest an additional $1 billion to develop its production and distribution systems, fashion design and infrastructure. Evas, together with the Vietnamese petroleum giant, PetroVietnam, has already commenced building a $200 million synthetic fibre plant in northern Haiphong, a port city. The plant would initially produce 500 tonnes per day, aiming to provide a spectacular 40 per cent of the materials for domestic yarn production by 2011.

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