The future of textile industry depends on garments

Vietnam’s textile industry will only be able to develop when textile enterprises can sell their products to garment companies, i.e that only when garment companies can export the products designed by themselves and using domestic fabric, will the industry take off.

Almost all materials for garment industry are imports

According to Vu Duc Giang, Chair of the Vietnam Textile and Apparel Association (Vinatas), in the textile and garment industry development strategy, Vietnam tries to restrict the foreign direct investment (FDI) in garment, while it has been trying to attract more investment in textile, dyeing and supporting industries.

The aim of the strategy is very clear: Vietnam wants to gradually ease the reliance on import fabric and materials. However, after a lot of years, Vietnam still cannot do that.

Tran Quang Nghi, General Director of the Vietnam Textile and Garment Group (Vinatex), said that textile companies’ shares prove to be unattractive, which explains why it is very difficult to issue shares to the public. Therefore, in the immediate time, Vinatex still has to focus on garment, which allows it to earn more money to re-invest in the textile industry and seek more markets for textile products.

In the last seven years, the export turnover of textile and garment products increased by three folds, from 4.3 billion dollars to 13 billion dollars. However, during that time, the fabric output has only increased by two folds to 1.2 billion square meters. Meanwhile, the fabric imports have been increasing steadily.

According to Vinatex, in the first six months of 2011, Vietnam exported 6.16 billion dollars worth of textile and garment products, while importing 5.7 billion dollars worth of materials.

Of this amount, the fiber imports were worth 800 million dollars, while the remaining sum of money was paid for imported fabric. With the fabric price hovering around 2.2-4.5 dollar per square meter, it was estimated that the Vietnam imported billions of square meters of fabric just in the first half of 2011.

For a long time, people believed that the high investment rate and the low rate of return on investment capital were the biggest barriers to the development of the textile industry. However, this proves to be not the most important reason.

In general, a textile factory with the capacity of 10 million square meter per annum will need the investment capital of 15 million dollars, which is not a too big sum of money for Vietnamese enterprises.

Analysts have pointed out that the biggest barriers for the development of the textile industry are the export mode of the garment industry and the weakness of the textile industry.

Upgrading technologies or joining global value chain?

Currently, most of the Vietnamese garment companies still do the outsourcing for foreign companies or export products under the FOB mode (Vietnamese companies purchase materials and sell finished products). In both cases, Vietnamese companies have to make products under the designs provided by importers. Therefore, they have to use foreign sourced materials, from fabric – the main material, to other kinds of materials and accessories.

As such, Vietnamese textile companies do not have many opportunities to sell their products to garment companies which need materials to fulfill orders.

The second problem that makes Vietnamese textile products unsalable is the low quality of products. Experts have affirmed that one should blame this on the backward equipments and machines used in the textile industry. A lot of companies now have modern machines imported from Europe, but their products are still less attractive than that made by South Korea, or Taiwan.

The key here is the technology know-how that Vietnam still does not have.

Le Tien Truong, Deputy General Director of Vinatex, said that garment companies are striving to export products under the mode of ODM, which means selling products made in accordance with domestic designs.

According to Truong, Vinatex’s exports under ODM mode has reached five percent, which should be seen as an encouraging result. The proportion is hoped to increase to 15 percent by 2015.

Source: TBKTSG

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