Garment exports up, profits down

Vietnam Textile and Apparel Association (Vitas) has affirmed that its goal of $10.5 billion in export revenue for 2010 is within reach. As export revenues rise, however, profits are dropping.

Le Quang Hung, Chair of Garmex Company, estimated that, in the first six months of the year, total export revenue reached 281 billion dong, but the profit stood at only 15 billion dong, or five percent of the revenue.

According to Hung, garment companies have more orders in 2010 than in 2009, but profits have not risen because production costs have increased. The Garmex workers’ salary now is three million dong/month, up from 2.5 million dong/month in 2009. It is also very difficult to access bank loans as interest rates have increased because the State has no subsidy program anymore. Expenses for electricity and freight costs have also climbed by 15 percent.

Hung remarked that export price increases of 10-15 percent are not big enough to offset production cost increases of 25 percent.

According to Pham Xuan Hong, garment companies’s profits are very low now. “Not many garment companies, only about 20 percent, can obtain a profit of five percent of their revenue, while other companies can earn only three percent,” Hong revealed.

“Some companies only get several thousand dong for each shirt. Small firms do not even consider profits nowadays. They just try to maintain production to have jobs for their workers,” Hong added.

According to Nguyen Huu Toan, Director of Saigon 2 Garment Company, it is very difficult for enterprises to boost exports when domestic sources cannot provide materials and accessories to garment companies. Saigon 2 had definite orders to make and sell products, but it could not find any fabric suppliers, so it had to agree to made products under CMT (cut, make and trim) mode.

Toan maintained that, to date, no Vietnamese company can export products under FOB mode (definite selling products) in the true sense. None can undertake all stages of production, from designing to making finished products and then selling them products to gain 30 percent profits.

In fact, Vietnamese companies only make products based on clients’ ideas and instructions. Therefore, the firms receive small profits just equal to the outsourcing price, plus several percent of the management fee and material purchases.

Looking at the issue from another angle, Hung speculated that companies can only increase profits when they become direct producers for global groups like Nike or Columbia. For now, most Vietnamese companies receive orders from intermediaries –groups from South Korea, Taiwan and Japan – which ensure very low profits for firms in Vietnam.

Tags: Vietnam garment exports, Vietnam Garment industry