Garment exports set to rise as industry holds line on prices

Viet Nam’s garment industry has a worldwide reputation for making competitively priced and high quality garments, a survey conducted by the US-based non-profit group Kearny Alliance has found.

To maintain global competitiveness, 65 per cent of garment suppliers would keep export price hikes below 5 per cent until the end of this year, and 48 per cent expect to maintain export quotas, according to the survey.

Industry experts who were interviewed for the survey said there was a general sense of optimism, especially as demand from key markets like the US is expected to increase in the near future.

Viet Nam is one of the world’s most important supply centres of garments, with a large number of well-established international apparel and retail brands sourced from its factories.

Viet Nam also boasts an expansive pool of skilled workers and automated manufacturing facilities that use equipment imported from Japan, Taiwan and South Korea, according to the Kearny Alliance report.

The country ranks as the fifth-largest exporter of clothing in the world, according to figures from the World Trade Organisation.

Of all outbound shipments from the country, garments account for about 15 per cent.

Brisk domestic and foreign demand has helped the garment industry become the second-largest export earner for Viet Nam, after crude oil.

According to the government’s figures, the country sent more than US$9 billion worth of garments and textiles to overseas destinations in 2010, showing an 18 per cent growth compared to the previous year.

Of many overseas destinations, the US remains the largest export market for Viet Nam, accounting for more than 56 per cent of sales this year.

Despite the slump, the latest official data from the US indicates that incoming shipments of Viet Nam garments have not fallen.

The survey shows that 55 per cent of the country’s garment suppliers will continue to target the US.

In 2008, the EU and Japan were the second – and third-largest overseas markets, attaining $1.7 billion and $81 million worth of shipments, respectively.

Viet Nam is home to 2,000 garment suppliers, the overwhelming majority of which are private or joint-stock companies. There are close to 450 foreign-invested makers and roughly 50 state-owned businesses.

The sector employs nearly 2 million people and has the potential of creating 100,000 jobs every year.

Small – and mid-sized manufacturers are generally owned locally. Large factories are usually foreign-invested, use advanced equipment and are capable of turning out at least 250,000 pieces monthly.

During the global recession, the garment industry did not suffer losses as much as other industries at the beginning of the financial crisis. But as previously signed contracts ended, the impact on the industry became severe.

In addition to recovering from the effects of the recession, the country’s garment industry is confronting a number of difficulties.

Production costs

Foremost of those is the high production cost brought about by increasing material prices.

Fabrics such as cotton, polyester and spandex became more expensive by 5 to 10 per cent, due to greater demand for textiles imported from the US, India and Taiwan.

Costs of components and accessories, including yarn, buttons, labels, hangers and packaging such as poly-bags, have also gone up by at least 10 per cent.

The rising cost of petrol in the early months of this year and Viet Nam’s high inflation rate were among the key reasons behind the price upswing of these materials.

To address these barriers, garment suppliers in the country are increasingly using locally made fabrics.

Many manufacturers buy raw materials from local suppliers, particularly in Ha Noi, HCM City and Da Nang.

Only a few other companies are continuing to import raw materials from China, India, Bangladesh, Taiwan, South Korea and Thailand.

The Kearny report said that rising labour costs were the most crucial challenge facing the industry.

With the government enacting new minimum salary regulations, basic wages of skilled workers have soared by almost 50 per cent. As a result, some suppliers have either cut back on their workforce or on operating hours.

Absorbing losses and accepting lower profits have had to be accepted by many companies. In order to sustain revenue, some companies plan to increase prices by up to 10 per cent over the next 12 months, according to the survey.

Through its Developing Country Export Assistance Programme, the Kearny Alliance has offered training to suppliers of various industries in emerging economies to increase awareness of the importance of marketing.

Kearny has also offered suppliers a free four-month use of a business-to-business website on Global Sources Online where they can market new products to a community of 888,000 active buyers worldwide.-VNS

Tags: Vietnam Garment, Vietnam garment exports, Vietnam Garment industry