Too little, too late for footwear production?

The Ministry of Industry and Trade has submitted a plan to the Government on developing supporting industries for key sectors of the national economy.

Under the plan, industrial products that make materials for five key industries, including footwear and garments, will be able to enjoy preferential policies on investment for market development, science and technology, infrastructure and labour force training.

As for the materials that can be made domestically, the Government will apply the maximum possible tariffs in accordance with Vietnam’s commitments under bilateral and multilateral agreements. Regarding capital, enterprises that implement projects of supporting industries may be able to borrow up to 85 percent of the total fixed capital from the investment and development credit source.

The plan is being considered by relevant ministries, however, stories of business leaders who once operated in supporting industries are also being considered.

Dong Hung Company is a footwear producer in Binh Duong Province that employees 2000 workers. Director Ha Duy Hung noted that, over the last 10 years of outsourcing, the price of shoes has increased by only 10 percent, while input expenses, including labour costs and materials have increased by 30-40 percent.

Showing canvas shoes the company makes for a British partner, Hung remarked that, previously, companies simply outsourced to foreign partners, but now enterprises can export under the mode of FOB. Still, a lot of materials used to make shoes must be imported.

When he heard the strategy on developing supporting industries, he commented: “It seems too late to think about that.”

Hung revealed that, many years ago, once tried to make materials for footwear production, but he finally gave up and decided to import materials. He cited the production cost of tanned leader, for example, which is much higher than the import price from China and India

Low economic efficiency and unsalability are the reasons that plans to make materials for production failed completely.

“Vietnamese footwear companies must now compete fiercely with foreign-invested enterprises from Taiwan and China that have more modern equipment and machines,” Hung pointed out.

Nguyen Van Khanh, Secretary General of the HCM City Leather and Footwear Association, agreed that after so many years, the locally-made content of shoes remains modest at 25 percent, whereas 75 percent of the materials are imported.

As such, the goal of obtaining 40 percent of the localization ratio by 2010 and 80 percent by 2020 for the footwear industry remains only on paper.

Tags: Vietnam Footwear, Vietnam Footwear Exports