Garment paradox: the more exported, the bigger the loss

The rapid-fire signing of export contracts since the beginning of 2010 has put garments among six items with export revenues of over one billion dollars. Garment export revenues reached $3.04 billion over the last four months, an increase of 18.9 percent over the same period of 2009. Yet these exports are creating losses, not profits.

Prices fixed and non-negotiable

Despite the global economic crisis, the garment industry still fulfilled its export plans for 2009 and revenues continue to increase in the first four months of 2010. Statistics show that, to date, garments have fulfilled 1/3 of their yearly export plan, making the goal of exporting $10.5 billion in products for 2010 become feasible.

Nevertheless, insiders are now worried about the export revenue growth. The more products exported, the bigger the losses they suffer, even as the export price has increased by 5-7 percent over late 2009 and by 15 percent over the same period of 2009.

Input material prices are the problem. They have increased so sharply that modest export price increases of several percent cannot cover expenses.

Vietnam still relies on 90 percent imported input materials. Cotton prices have surged from $1.3-1.4 per kilo earlier this year to $1.9 per kilo as a result of India’s decision to halt cotton exports. The fiber has increased in price by 34.3 percent in comparison with the same period of 2009.

The price hikes of input materials have, in turn, caused a sharp rise in material import revenues at $738 million in the last four months, just below the import revenues for cars and steel.

Despite input material price increases, Vietnamese exporters cannot renegotiate export prices, which are fixed in their contracts.

Garment companies also worry about the labor shortage, which has led to a 10 percent decrease in production capability. Garment workers can generally earn no more than $200 a month, or four million dong. In 2009, despite the export price decrease of 10-20 percent, enterprises still had increase wages by 10 percent at retain workers. Now, the companies cannot keep workers at such low wages.

Vietnamese products uncompetitive

Analysts point out that the competitive edge lies not only in prices (which still play the decisive role), but also in delivery time, quality and many other factors.

At many company meetings on measures to increase exports, leaders of the Vietnam Textile and Garment Group always cite the trend of shortening production time. Previously, it took 180 days on average to fulfill an order, from the day of signing the contract to the day of delivery. Now it takes just 90 days.

Vietnamese enterprises find it difficult to shorten production time, because they must wait for material imports, which must follow customs procedures.

Some garment export companies have asked the Ministry of Industry and Trade to give support for domestic textile and fiber producers. If domestic companies can provide materials to garment businesses, production costs will drop. This will not be easy since Vietnam must obey WTO commitments on local production protection.

Currently, domestic sources can provide two percent of the total demand for cotton to textile producers. As for other materials like thread and zippers, domestic sources can provide 60-70 percent. This means that Vietnam must still import 90 percent of total materials needed, which decides the export prices.

Some analysts predict that reliance on imports may be eased once a polyester factory with 160,000 tons per annum capacity and a foreign-invested fiber factory with a capacity of 60,000 tons per annum becomes operational in late 2011.

Thoi bao Kinh te Saigon

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