Garment companies torn by too many orders

Foreign importers have place enough orders to provide jobs at Vietnamese garment companies until the end of the third quarter of 2010 and beyond, but sometimes there can be too much of a good thing.

In the first six months of 2010, garment exports brought $4.87 billion in revenue, an increase of 17.2 percent over the same period of 2009. Exports to the US increased by 15 percent and those to Japan increased by 10 percent.

According to Vietnam Textile and Apparel Association (Vitas), orders are pouring in rapidly, while the export prices are rising, already by 10-15 percent over the same period of 2009.

Big corporations like Viet Tien, Garment Company No. 10, An Phuoc and Nha Be have reported enough contracts to last until the end of 2010, while other companies report more than enough for the third quarter.

Nguyen Thi Hong Tin, a senior executive of Vietnam Textile and Garment Group (Vinatex) noted that the world’s consumption has increased again. Now, foreign importers tend to place orders with Vietnam instead of China, because Vietnamese producers offer lower prices.

Nevertheless, Vitas warned that Vietnamese firms must still face difficulties.

Material prices have climbed sharply, with cotton rising by 40 percent in comparison with the same period of 2009, making production costs higher. In addition, Vietnam must still rely on material imports, which account for 80-95 percent of total materials.

Pham Thi Lieu, General Director of MSA-Hapro Joint Venture, asserted that Vietnamese companies cannot use higher input production costs to increase export prices. If they do, foreign importers will turn to other countries with low prices, like Bangladesh or Pakistan.

Regular power outages are also an obstacle, causing higher production costs. A Hung Yen garment factory, for example, has power cuts two days a week. This forces the company to run electric generators, costing them six times more.

Still, the factory would rather run electric generators than delivery products late. Lieu noted that, if they miss the ships, the company must ship by air, paying high rates of 100 million dong for a 40 foot container.

What worries garment companies most is the labor shortage, Lieu maintained.

Nguyen Van Do, General Director of DHA, which specializes in making clothes for US retailers, speculated that if power cuts and labour shortages continue, and if firms must deliver products by air, they will have to shut down.

Currently, the average wage of northern garment workers has risen to 1.8-2.2 million dong/month, but over 10 percent have still shifted to other jobs. To deal with this labor shortage, Vitas advised garment companies to relocate production workshops to rural areas.

Tags: Vietnam garment exports, Vietnam Garment industry